In view of healthy cashflows and growing investments, Petronet LNG looks attractive on a long term horizon
RAMKRISHNA KASHELKAR ET INTELLIGENCE GROU P
Beta: 0.84
Institutional Holding* 11.43%
Dividend Yield: 2.8%
P/E: 9.2
M-Cap: Rs 3975 cr
CMP: Rs 53
PETRONET LNG (PLNG) is India’s largest importer of liquefied natural gas (LNG) representing nearly 25% of India’s total natural gas consumption in FY09. The company is promoted by ONGC, Gail India, Bharat Petroleum and Indian Oil, which together hold 50% of its equity capital with strategic stakes held by Gaz de France (10%) and Asian Development Bank (5.2%).
PLNG set up its first LNG import terminal at Dahej in Gujarat with 5 million tonne per annum (MTPA) capacity in 2004. The company has entered into a 25-year contract with RasGas of Qatar for import of 5 MTPA of LNG, which will be scaled up to 7.5 MTPA from September 2009. The company has entered into back-to-back sell agreements with the promoter group companies, which market the regassified LNG (RLNG) to domestic customers. This arrangement not only insulates PLNG from any marketing risks, but also cuts down any requirement of working capital. The company earns a small fixed charge on regassification of LNG, which is revised annually.
Growth Drivers:
The company is set to benefit both from incremental volumes as well as increase in its conversion charges. The company has doubled the capacity of its Dahej LNG terminal to 10 MTPA and is currently in the process of commissioning the additional capacity in a phased manner. Similarly, its regassification charges were raised by 5% starting January 1, ‘09 to Rs 30 per MMBTU. The company has also tied up another six months of LNG supplies with BP for the Dabhol Power project. At the same time, import of spot cargos too is expected to rise with LNG prices coming down heavily.
Despite additional gas starting to flow out of RIL’s eastern offshore oil fields, India still remains undersupplied in terms of natural gas availability. This gives ample scope for PLNG to utilise its expanded capacities, provided LNG is imported at a competitive price. Globally the supply of LNG is set to increase over next few years with a number of projects currently under construction, which increases the possibility of the company striking a long-term supply deal in near future. The company has also taken up 26% stake in a dry-bulk cargo port at Dahej, the first phase of which is likely to complete by end 2009. PLNG is also contemplating setting up power plants near its regassification projects in Dahej, as well as Kochi, once it is ready.
Financials:
With the conversion charges fixed, the company’s revenues and profits depend directly on the volume of LNG handled. Over last four years the company has continuously increased the volumes, resulting in nearly 130% utilisation of its nameplate capacity of 5 MTPA. However, the first nine months of FY09 witnessed stagnation in volumes due to difficult economic conditions. The company has brought down its debt-to-equity ratio consistently from FY05 to FY08, while improving the interest coverage ratio. Its sales have grown at a cumulative annual growth rate of over 40% over last five years, while the loss of Rs 28 crore in FY04 turned into a profit of Rs 475 crore in FY08. Being a capital intensive company, PLNG has been providing over Rs 200 crore annually towards interest and depreciation. With the commissioning of additional capacities, these numbers will double in coming quarters.
Valuations:
At the current price of Rs 53, the scrip is trading at 9.2 times its earnings for the 12-month period ended December 2008. We expect the company’s profits to grow at 20% in FY2010, which translates in a forward P/E of 7.2. The company’s last year’s dividend of Rs 1.5 per share is expected to continue, which gives a 2.8% dividend yield.
Risk Factors:
Sourcing a long-term LNG supply, which will guarantee optimum capacity utilisation, remains the key concern for the company’s future growth prospects. PLNG also runs execution risks towards its new projects.
EXPANDING TO GROW Petronet LNG has doubled capacity at its Dahej terminal to 10 MTPA, which will be fully operational by end-May The company annually generates over $100 million of cashflows The company has secured 1.5 million tonne of LNG supplies for Dabhol Power project From September 2009, PLNG’s imports from RasGas will jump 50% to 7.5 million tonne per annum Interest and depreciation are the largest costs for the company, which will double in FY 2010 Spot LNG rates have crashed substantially to $5 per MMBTU – nearly 70% below last year’s peak due to global recession and fall in demand for LNG Thanks to the back-toback purchase and sale arrangements PLNG needs no working capital Signing a long-term LNG supply deal at attractive price will be a key trigger for Petronet LNG’s growth
RAMKRISHNA KASHELKAR ET INTELLIGENCE GROU P
Beta: 0.84
Institutional Holding* 11.43%
Dividend Yield: 2.8%
P/E: 9.2
M-Cap: Rs 3975 cr
CMP: Rs 53
PETRONET LNG (PLNG) is India’s largest importer of liquefied natural gas (LNG) representing nearly 25% of India’s total natural gas consumption in FY09. The company is promoted by ONGC, Gail India, Bharat Petroleum and Indian Oil, which together hold 50% of its equity capital with strategic stakes held by Gaz de France (10%) and Asian Development Bank (5.2%).
PLNG set up its first LNG import terminal at Dahej in Gujarat with 5 million tonne per annum (MTPA) capacity in 2004. The company has entered into a 25-year contract with RasGas of Qatar for import of 5 MTPA of LNG, which will be scaled up to 7.5 MTPA from September 2009. The company has entered into back-to-back sell agreements with the promoter group companies, which market the regassified LNG (RLNG) to domestic customers. This arrangement not only insulates PLNG from any marketing risks, but also cuts down any requirement of working capital. The company earns a small fixed charge on regassification of LNG, which is revised annually.
Growth Drivers:
The company is set to benefit both from incremental volumes as well as increase in its conversion charges. The company has doubled the capacity of its Dahej LNG terminal to 10 MTPA and is currently in the process of commissioning the additional capacity in a phased manner. Similarly, its regassification charges were raised by 5% starting January 1, ‘09 to Rs 30 per MMBTU. The company has also tied up another six months of LNG supplies with BP for the Dabhol Power project. At the same time, import of spot cargos too is expected to rise with LNG prices coming down heavily.
Despite additional gas starting to flow out of RIL’s eastern offshore oil fields, India still remains undersupplied in terms of natural gas availability. This gives ample scope for PLNG to utilise its expanded capacities, provided LNG is imported at a competitive price. Globally the supply of LNG is set to increase over next few years with a number of projects currently under construction, which increases the possibility of the company striking a long-term supply deal in near future. The company has also taken up 26% stake in a dry-bulk cargo port at Dahej, the first phase of which is likely to complete by end 2009. PLNG is also contemplating setting up power plants near its regassification projects in Dahej, as well as Kochi, once it is ready.
Financials:
With the conversion charges fixed, the company’s revenues and profits depend directly on the volume of LNG handled. Over last four years the company has continuously increased the volumes, resulting in nearly 130% utilisation of its nameplate capacity of 5 MTPA. However, the first nine months of FY09 witnessed stagnation in volumes due to difficult economic conditions. The company has brought down its debt-to-equity ratio consistently from FY05 to FY08, while improving the interest coverage ratio. Its sales have grown at a cumulative annual growth rate of over 40% over last five years, while the loss of Rs 28 crore in FY04 turned into a profit of Rs 475 crore in FY08. Being a capital intensive company, PLNG has been providing over Rs 200 crore annually towards interest and depreciation. With the commissioning of additional capacities, these numbers will double in coming quarters.
Valuations:
At the current price of Rs 53, the scrip is trading at 9.2 times its earnings for the 12-month period ended December 2008. We expect the company’s profits to grow at 20% in FY2010, which translates in a forward P/E of 7.2. The company’s last year’s dividend of Rs 1.5 per share is expected to continue, which gives a 2.8% dividend yield.
Risk Factors:
Sourcing a long-term LNG supply, which will guarantee optimum capacity utilisation, remains the key concern for the company’s future growth prospects. PLNG also runs execution risks towards its new projects.
EXPANDING TO GROW Petronet LNG has doubled capacity at its Dahej terminal to 10 MTPA, which will be fully operational by end-May The company annually generates over $100 million of cashflows The company has secured 1.5 million tonne of LNG supplies for Dabhol Power project From September 2009, PLNG’s imports from RasGas will jump 50% to 7.5 million tonne per annum Interest and depreciation are the largest costs for the company, which will double in FY 2010 Spot LNG rates have crashed substantially to $5 per MMBTU – nearly 70% below last year’s peak due to global recession and fall in demand for LNG Thanks to the back-toback purchase and sale arrangements PLNG needs no working capital Signing a long-term LNG supply deal at attractive price will be a key trigger for Petronet LNG’s growth
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