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We initiate coverage on Petronet LNG Limited(Petronet) as a BUY with a Price Objective of Rs 151 (target PE of 11x ...

We initiate coverage on Petronet LNG Limited(Petronet) as a BUY with a Price Objective of Rs 151 (target PE of 11x
FY2013) over a period of 15-18 months. At CMP of Rs 132.1, the stock is trading at 13.6x and 9.6x its estimated earnings
for FY2012E & FY2013E representing a potential upside of ~13.6%. Petronet LNG is majorly engaged in the business of
LNG procurement, transportation and regasification. Burgeoning natural gas demand supply mismatch in the country
makes it inevitable that the additional demand would be met by imported LNG. Petronet LNG, with its Kochi terminal set
to commission in Q4FY12 and expansion at its Dahej terminal, is all set to benefit from the current scenario. In addition,
diversification plans into the power segment add further value to the company. We expect revenue & earnings growth of
26.1% & 36.5% CAGR respectively over the next three years.

Favourable natural gas demand and supply to augur well for PLNG
On the back of growing consumption, demand for natural gas is expected to
grow at a faster rate of 16.3% (5 year CAGR) to 381 mmscmd compared to
supply which is expected to grow at a 5 year CAGR of 6.8% to 202.9 mmscmd.
This burgeoning demand supply gap is expected to be met through LNG
imports and Petronet LNG with its expanded capacity is well placed to garner a
major portion of this incremental demand. We expect the revenues of Petronet
LNG to grow at a CAGR of 26.1% to Rs 21343.7 crore over the forecast
period.

Kochi terminal & Dahej expansion to drive volume growth
The USD 850 mn Kochi LNG terminal of 2.5 MMTPA capacity is expected to
commission in Q4FY12 which would be later expanded to 5.0 MMTPA by the
end of FY13. Kochi terminal can help serve the Southern market where the
landed cost of domestic gas is higher. The Dahej expansion to 12.5 MMTPA is
expected to commence by FY13 with an additional jetty at Dahej at a cost of
~USD 980 million. Both these projects are to funded in a 70:30 Debt to Equity
ratio. We expect the LNG volumes to grow from the 7.6 MMTPA in FY10 to
10.4 MMTPA in FY13.

LNG pricing not a major concern
Although the LNG pricing is linked to JCC, over the forecast period we do not
expect significant cost increases as there is a fixed formula for pricing the
sourced LNG. Also, with the company having back to back off-take
agreements, we do not foresee any risk in passing on any of the increased
costs. While the recent nuclear

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    Petronet lng Petronet lng Document Transcript

    • Stock PointerPetronet LNG Ltd. CMP Rs 132.1 P/E 9.6x FY2013E BUYWe initiate coverage on Petronet LNG Limited (Petronet) as a BUY with a Price Objective of Rs 151 (target PE of 11xFY2013) over a period of 15-18 months. At CMP of Rs 132.1, the stock is trading at 13.6x and 9.6x its estimated earningsfor FY2012E & FY2013E representing a potential upside of ~13.6%. Petronet LNG is majorly engaged in the business ofLNG procurement, transportation and regasification. Burgeoning natural gas demand supply mismatch in the countrymakes it inevitable that the additional demand would be met by imported LNG. Petronet LNG, with its Kochi terminal setto commission in Q4FY12 and expansion at its Dahej terminal, is all set to benefit from the current scenario. In addition,diversification plans into the power segment add further value to the company. We expect revenue & earnings growth of26.1% & 36.5% CAGR respectively over the next three years.PRICE TARGET Rs 151 (15-18 Months)Index Details Favourable natural gas demand and supply to augur well for PLNGSensex 19,697 On the back of growing consumption, demand for natural gas is expected toNifty 5,912 grow at a faster rate of 16.3% (5 year CAGR) to 381 mmscmd compared toBSE 500 7610 supply which is expected to grow at a 5 year CAGR of 6.8% to 202.9 mmscmd.Industry Utilities This burgeoning demand supply gap is expected to be met through LNGScrip Details imports and Petronet LNG with its expanded capacity is well placed to garner aMkt Cap (Rs in crore) 9907Book Value (Rs) 29.8 major portion of this incremental demand. We expect the revenues of PetronetEq Shares O/s (Cr) 75 LNG to grow at a CAGR of 26.1% to Rs 21343.7 crore over the forecastAvg Vol (Lacs) 2.6 period.52 Week H/L 136/75Dividend Yield (%) 2.5 Kochi terminal & Dahej expansion to drive volume growthFace Value (Rs) 10.0 The USD 850 mn Kochi LNG terminal of 2.5 MMTPA capacity is expected toBSE Code 532522 commission in Q4FY12 which would be later expanded to 5.0 MMTPA by theNSE Code PETRONET end of FY13. Kochi terminal can help serve the Southern market where the landed cost of domestic gas is higher. The Dahej expansion to 12.5 MMTPA is Shareholding Pattern (31st Mar, 2011) expected to commence by FY13 with an additional jetty at Dahej at a cost ofShareholders % holding ~USD 980 million. Both these projects are to funded in a 70:30 Debt to EquityPromoters 50.0 ratio. We expect the LNG volumes to grow from the 7.6 MMTPA in FY10 toIndian Institutions 9.9 10.4 MMTPA in FY13.FII’s 11.4Non Promoter Corporate 2.0 Power generation venture to be value accretivePublic 26.7 Petronet LNG is planning a foray into power generation by setting up a gasTotal 100.0 based 1200 MW power plant at Dahej at a cost of ~Rs 3,000 crore. The absence of VAT, zero transmission tariff and use of cold energy would ensure Petronet LNG vs. Sensex competitive pricing and would be value accretive. However, since no timeline is assigned, we have not factored this in our valuations. LNG pricing not a major concern Although the LNG pricing is linked to JCC, over the forecast period we do not expect significant cost increases as there is a fixed formula for pricing the sourced LNG. Also, with the company having back to back off-take agreements, we do not foresee any risk in passing on any of the increased costs. While the recent nuclear mishap in Japan would lead to increased demand for LNG and fossil fuels which could lead to price increases, long term with new supply centres opening up there would exist ample supply which would help keep prices benign. Key Financials Y/E Mar Net EBITDA PAT EPS EPS RONW ROCE P/E (X) EV/ (Rs Crore) Revenue Growth (%) (%) (%) EBITDA(X) 2010 10649.1 846.5 404.5 5.4 -28.2 18.1 18.7 24.5 14.3 2011E 13065.5 1206.8 582.1 7.8 43.9 22.3 20.2 17.0 10.0 2012E 15952.6 1495.9 728.4 9.7 25.1 23.6 20.4 13.6 8.1 2013E 21343.7 2020.2 1028.7 13.7 41.2 27.4 24.2 9.6 6.0-1- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Company Background Petronet LNG incorporated in 1998 by the Government of India, is primarily engaged into LNG procurement, transportation and regassification. The four promoters ONGC, GAIL, BPCL and IOCL each hold 12.5% stake in the company. The company operates India’s first LNG terminal at Dahej and is in the process of setting up the second terminal at Kochi. LNG Value Chain The LNG value chain represents four levels of activities beginning with exploration and production and culminating in storage and regassification. Exploration and production is an upstream activity involving extraction of natural gas from underground reservoirs and is then sent to liquefaction plants through gas pipelines. At the liquefaction plant, the gas is freed o from its inborn impurities and is liquefied at a temperature of -162 C through a set of three cooling processes. The Liquefied gas, LNG, is then loaded onto specially designed tanker ships (cryogenic vehicles) and is transported to the destination where it is re-gassified. The gas is moved into pipelines which then deliver the natural gas to consumers, power plants and industrial customers across the country. LNG Value Chain Source: Petronet LNG & Ventura Research estimates Business Model Petronet LNG finds its presence in the downstream segment of the LNG value chain and is majorly into reception, storage & regasification of LNG. With the help of its three cryogenic vessels Raahi (138,077 cubic metres), Disha (138,097 cubic metres) and Aseem (154,000 cubic metres) the company receives LNG at its Dahej terminal, regasifies the LNG and then transmits it through the promoter’s gas transmission network to its-2- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer customers. Petronet’s off-take agreement with its Promoters Dahej Kochi Company % Qty. (MMTPA) % Qty. (MMTPA) GAIL 60% 4.50 30% 0.45 IOC 30% 2.25 30% 0.45 BPCL 10% 0.75 40% 0.60 Total 100% 7.50 100% 1.50 The company has recently ventured into marketing of LNG and has launched a pilot project in Gujarat. The company is also looking to expand the supply of gas by road and is also evaluating creation of small storage hubs along the highways. It further plans to vertically integrate through ports and powers. Petronet is also mulling with the idea of setting up a LNG terminal on the east coast of India and is carrying out feasibility studies on the same. Investment highlights Favourable natural gas demand and supply augur well for PLNG On the back of growing consumption, demand for natural gas is expected to grow at a faster rate of 16.3% (5 year CAGR) to 381 mmscmd compared to supply which is expected to grow at a 5 year CAGR of 6.8% to 202.9 mmscmd. This burgeoning demand supply gap is expected to be met through LNG imports. Petronet LNG with its expanded capacity is well placed to garner a major portion of this incremental demand. We expect the revenues of Petronet LNG to grow at a CAGR of 26.1% to Rs 21343.7 crore over the forecast period. Natural Gas Supply Natural Gas Demand (In mmscmd) 450 (In mmscmd)250 400 350200 300 250150 200 150100 100 50 50 0 0 Supply DemandSource: Industry Sources & Ventura Research estimates Source: Industry Sources & Ventura Research estimates -3- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Revenue and PAT (Rs crores) 25000 50% 40% 20000 30% 15000 20% 10% 10000 0% -10% 5000 -20% 0 -30% FY10 FY11e FY12e FY13e Net Sales Profit After Tax Revenue growth rate (%) PAT growth rate (%) Source: Petronet & Ventura Research estimates Natural gas contribution to the national energy mix set to increase With increased focus on clean energy worldwide, Natural gas on account of its non polluting nature is increasingly gaining importance. India’s natural gas demand has grown significantly and supply is unable to keep pace with the demand due to low availability of natural gas and inadequate transmission and distribution infrastructure. Currently, the natural gas has a 14% share in the domestic energy mix which compares poorly to that of 24% worldwide consumption. With increased focus on the development of gas pipeline infrastructure and around 349 mmscmd of pipeline expected to come up in the next five years, the contribution of natural gas in the energy mix is expected to increase to 20% by 2025 in which LNG volumes are expected to be sizeable. Break up of India’s Energy Mix In (%) 120 100 80 60 40 20 0 1997-98 2001-02 2006-07 2010-11 2024-25 Coal Oil Gas Hydel Nuclear Source: Ministry of Petroluem & Natural Gas Uptick in consumption across segments Driven primarily by uptick in consumption in the power and the fertilizer segment, the natural gas demand is expected to grow at 16.3% (5 year CAGR) to 381 mmscmd. With 23 GW of gas based power plants expected-4- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer to commission by FY15, the natural gas demand for power generation would remain upbeat and lack of sufficient production from domestic sources would shift focus more towards the use of LNG. The fertilizer sector would benefit from the use of natural gas as it is cheaper than other feed stock viz: naptha and furnace-oil. Further with fertilizer spending being clubbed as an infrastructure sub category, higher investments would spur growth leading to increased gas demand. In addition the development of city gas distribution infrastructure is expected to boost gas demand as the cost effectiveness of LNG is expected to replace LPG and other traditional auto fuels. Sector wise demand break up of natural gas in India Sector demand growth rate (In mmscmd) 50.0% 300 250 25.0% 200 0.0% 150 2010-11e 2011-12e 2012-13e 2013-14e 2014-15e -25.0% 100 -50.0% 50 0 -75.0% 2009-10 2010-11e 2011-12e 2012-13e 2013-14e 2014-15e -100.0% Power Fertilizer Captive Power City gas distribution Refinery Petrochemicals Power Fertilizer Sponge iron Captive Power City gas distributionSource: Industry Sources & Ventura Research estimates Source: Industry Sources & Ventura Research estimates Natural gas demand & demand growth rate (In mmscmd) 250 35.0% 30.0% 200 25.0% 150 20.0% 15.0% 100 10.0% 5.0% 50 0.0% 0 -5.0% Supply Supply growth rate Source: Industry Sources & Ventura Research estimates Supply to lag demand Due to the decline in the production of natural gas and lack of pipeline infrastructure, the natural gas supply is expected to grow at a slower rate of 6.8% (5 year CAGR) to 202.9 mmscmd by 2014 compared to the demand of 381 mmscmd. Uncertainty regarding the production ramp up at the prolific KG D6 basin; ONGC’s KG block & GSPC’s Deen Dayal fields expected to reach peak production only after FY15, the domestic supply -5- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer scenario is expected to remain under pressure due to declining trends from the ageing onshore fields. Upward trend in supply of Natural Gas (In mmscmd) 250 35.0% 30.0% 200 25.0% 150 20.0% 15.0% 100 10.0% 5.0% 50 0.0% 0 -5.0% Supply Supply growth rate Source: Industry Sources & Ventura Research estimates New production coming on stream Production from ONGC KG Basin is expected to come on stream from May this year with a production of 2 mmscmd which is expected to rise to 3 mmscmd in the near term. However the peak production of 20 mmscmd is expected to come on stream only after FY15. The GSPC Deen Dayal fields in the KG Basin are at an exploratory stage and would take more than a year to come on stream. RIL’s KG D6 field is suffering problems of excessive water cut and the company has scaled downward its production target to 38mmscmd. This is diabolic to the recent upgrades announced by DGH to 67 mmscmd for production from the KG D6 basin. CBM fields are expected to raise production to 6 mmscmd by FY15e from the 3 mmscmd levels of FY11e. Natural Gas Onshore Production In million cubic metres 9800 9600 9400 9200 9000 8800 8600 8400 8200 2005-06 2006-07 2007-08 2008-09 2009-10 Natural Gas Onshore Production Source: Industry Sources & Ventura Research estimates Supply gaps – Advantage LNG The burgeoning demand - supply gap would be met through LNG imports which are expected to play a crucial role in meeting India’s energy-6- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer requirement. LNG imports are expected to grow at a 5 year CAGR of 26.1%. The share of LNG in total gas supply is expected to increase from 23.1% to ~27.5% by 2015. Petronet LNG with its expanded capacity is well placed to garner a major portion of this incremental demand. Demand Supply mismatch in favour of Petronet (In mmscmd) 450 400 Widening Demand 350 Supply Gap 300 250 200 150 100 50 0 Supply Demand Source: Industry Sources & Ventura Research estimates Firm supply agreement with Ras Gas, Qatar & Gorgon gas, Australia augurs well for Petronet LNG Firm supply agreements with Ras Gas, Qatar and Gorgon Gas, Australia places Petronet LNG is a sweet place with assured supply at a pre decided pricing formula. For the Dahej Terminal, it has a contract with Ras Gas for a contracted volume of 7.5 MMTPA with prices linked to JCC (Japanese Crude Cocktail). In addition Petronet has 2.5 MMTPA supply agreement with Gorgon Gas for its Kochi Terminal. LNG supply agreements Duration Qty. Contracted (In Supplier (In Years) Period MMTPA) RasGas, Qatar 25 2004-29 5 RasGas, Qatar 25 2009-34 2.5 Gorgon LNG, Aus 20 2014-34 1.5-2.5 Kochi terminal & Dahej expansion to drive volume growth The USD 850 mn Kochi LNG terminal of 2.5 MMTPA capacity is expected to commission in Q4FY12 which would be later expanded to 5.0 MMTPA by the end of FY13. Kochi terminal can help serve the Southern market where the landed cost of domestic gas is higher. The Dahej expansion to 12.5 MMTPA is expected to commence by FY13 with an additional jetty at Dahej at a cost of ~USD 980 million. Both these projects are to funded in a 70:30 Debt to Equity ratio. We expect the LNG volumes to grow from the 7.6 MMTPA in FY10 to 10.4 MMTPA in FY13. Subsequently, we expect the revenues to grow at a 3 year CAGR of 26.1% to Rs 21342.7 crore over the forecast period.-7- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Petronet Expansion Plan Capacity in (mmtpa) Production Capex (USD Terminal Present To be added Post expansion Schedule million) Dahej Terminal 10 2.5 12.5 Q2FY14 800 Kochi Terminal-Greenfield - 2.5 2.5 Q4FY12 850 Kochi Terminal-Expansion - 2.5 5.0 Q2FY13 Total 10 7.5 20.0 1650 Source: Petronet & Ventura Research estimates Petronet’s capacity and production (In MMTPA) 16.0 In MMTPA 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 FY05 FY06 FY07 FY08 FY09 FY10 FY11e FY12e FY13e Capacity Production Source: Petronet & Ventura Research estimates Higher margins for Kochi operations Lack of gas infrastructure in Southern India makes it difficult for the domestic gas producers to serve the market and increases the landed cost of domestic gas. However, Petronet LNG with its Kochi terminal is well placed to serve the market. Kochi Terminal help serve Southern Markets No existing gas pipeline indicates opportunity for Kochi Terminal Source: Industry Sources Higher regasification margins of Rs 57.1/mmbtu (as against Rs 37/mmbtu-8- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer prevalent at Dahej) and 25% volume growth would help boost revenue and margins. This should lead to improved EBITDA & Net profit margins to 9.5% (+130 bps) and 4.8% (+ 100 bps) respectively by FY13. Power generation venture to be value accretive Petronet LNG is planning a foray into power generation by setting up a gas based 1200 MW power plant at Dahej at a cost of ~Rs 3,000 crore. The absence of VAT, zero transmission tariff and use of cold energy would ensure competitive pricing and would be value accretive. However, since no timeline is assigned, we have not factored this in our valuations. LNG pricing not a major concern Although the LNG pricing is linked to JCC, over the forecast period we do not expect significant cost increases as there is a fixed formula for pricing the sourced LNG. Also, with the company having back to back off-take agreements, we do not foresee any risk in passing on any of the increased costs. While the recent nuclear mishap in Japan would lead to increased demand for LNG and fossil fuels which could lead to price increases, long term with new supply centres opening up there would exist ample supply which would help keep price hikes benign. LNG prices linked to JCC prices 160 140 120 100 80 60 40 20 0 2/1/1999 8/1/1999 2/1/2000 8/1/2000 2/1/2001 8/1/2001 2/1/2002 8/1/2002 2/1/2003 8/1/2003 2/1/2004 8/1/2004 2/1/2005 8/1/2005 2/1/2006 8/1/2006 2/1/2007 8/1/2007 2/1/2008 8/1/2008 2/1/2009 8/1/2009 2/1/2010 8/1/2010 LNG CIF Prices (USD/mmbtu) JCC prices (USD/bbl) Source: Bloomberg Sensitivity of LNG Prices to Crude Oil prices LNG Prices ( in $/mmbtu) Jan-11 Jan-12 Jan-13 Jan-14 JCC @ USD 85/bbl Fixed Component 1.5 1.0 0.5 0.0 Variable Component 3.3 5.2 7.0 8.5 LNG Price 4.8 6.2 7.4 8.5 JCC @ USD 100/bbl Fixed Component 1.5 1.0 0.5 0.0 Variable Component 4.2 6.2 8.2 10.0 LNG Price 5.6 7.1 8.6 10.0 JCC @ USD 115/bbl Fixed Component 1.5 1.0 0.5 0.0 Variable Component 4.8 7.1 9.4 11.5 LNG Price 6.3 8.1 9.9 11.5 Source: Ventura Research estimates-9- Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Long term LNG pricing to remain benign The recent nuclear mishap in Japan is expected to pressure global growth of atomic energy which in turn would lead to increased dependence of the Japanese on LNG. This should impact the pricing of ‘spot’ LNG. However long term the prices of LNG are expected to remain benign given the fact that new supply centres are emerging and the new initiatives of shale gas, particularly in the United States should lead to lowered demand for LNG. The current US demand for LNG which constitutes ~11% of its total energy requirements is expected to decline to 1% of total energy demand by 2035. Global LNG Demand Supply Scenario In MMTPA 500 450 400 350 300 250 200 150 100 50 0 Capacity Demand Source: Industry Sources Global LNG imports, driven majorly by new demand centres is expected to reach 360 - 400 MMTPA by 2020.The new supply coming up from Qatar, Australia, Nigeria and Iran is expected to be absorbed till 2015. Post 2015, the supply is expected to exceed demand leading to a surplus of ~90MMTPA by 2020. LNG Demand Centres 5% 5% 19% 5% 6% 11% 35% 14% Others Japan South Korea Spain France US India Taiwan Source: Industry Sources- 10 - Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Key Concerns • Volumes sensitive to LNG prices In the past LNG volumes have been negatively affected by sharp spikes in LNG prices. However given the fact that energy costs of other competing sources is also rising we do not expect volumes to dip. In addition back to back off take agreements with GAIL, IOC & BPCL ensure that the risk is minimal. Co-relation between LNG Volume and Price 1200000 18 Increase in prices led to an 16 1000000 lower up take in gas volume 14 800000 12 10 600000 8 400000 6 4 200000 2 0 0 Total LNG Volumes (in tonnes) LNG Price (USD/mmbtu) Source: Bloomberg • Any change in the government policies in respect to bring under review the regasification margins or change in LNG trade policy would have a negative impact on the stock. Financial Performance Driven by higher regasification volumes and average realizations, Petronet posted a rise of 61.6% (YoY) in net sales to Rs 3627.6 crore for Q3FY11 while the EBITDA margins improved to 9.5% (+20 bps yoy), on the back of higher spot volumes and lower than expected other expenses. The net margins increased by 100bps to 4.7%. For 9MFY11, Net Sales grew by 11.5 %( YoY) to Rs 9211.3 crore as compared to Rs 8263.6 crore in the corresponding period of last year. EBITDA margin for 9MFY11 improved by 160 bps to 9.4%. For 9MFY11, the company reported a net margin of 4.5% against 3.9% in 9MFY10.- 11 - Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Quarterly Financial Performance Y/E March, Fig in Rs. Cr Q3FY11 Q3FY10 YoY (%) 9MFY11 9MFY10 YoY (%) FY10 Net Sales 3627.6 2244.6 61.6 9211.3 8263.6 11.5 10649.1 Total Expenditure 3282.0 2035.8 61.2 8346.4 7619.4 9.5 9802.6 EBITDA 345.6 208.8 65.6 865.0 644.3 34.3 846.5 EBITDA Margin 9.5 9.3 9.4 7.8 7.9 Other Income 5.4 16.7 -67.7 36.6 64.7 -43.4 97.8 PBDIT 351.0 225.5 55.7 901.6 708.9 27.2 944.3 Depreciation 46.5 46.6 -0.2 139.2 115.2 20.8 160.9 Interest 50.7 53.4 -5.1 150.0 115.2 30.2 184.0 PBT 253.8 125.5 102.2 612.3 478.5 28.0 599.5 Tax Provisions 83.0 42.3 96.2 199.0 153.7 29.5 195.0 Reported PAT 170.8 83.2 105.3 413.3 324.8 27.3 404.5 PAT Margin 4.7 3.7 4.5 3.9 3.8 Source: Petronet Financial Outlook On account of higher realizations and enhanced capacities, we expect the total revenues to grow at CAGR of 26.1% from Rs 10649.1 crore in FY10 to Rs 21343.7 crore in FY2013. Higher regasification margins and improved utilization rates should help boost EBITDA and net margins from current levels of 7.9% & 3.8% to 9.5% & 4.8%, respectively by end of FY2013. Petronet Performance forecast FY2010-2013 25000 Rs crores 10% 9% 20000 8% 7% 15000 6% 5% 10000 4% 3% 5000 2% 1% 0 0% FY2010 FY2011e FY2012e FY2013e Net Sales EBIDTA Margin % PAT Margin (%) Source: Petronet & Ventura Research estimates With increased cash flows and part financing of capex through internal accruals, the Debt/Equity ratio is expected to be lowered from current levels. Along with this, the share holder return ratios of ROE and ROCE are also expected to improve to 27.4% & 24.2% respectively by end of FY2013.- 12 - Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • Stock Pointer Debt/Equity, ROE and ROCE all set to improve In % 29 1.4 27 1.4 1.3 25 1.3 23 1.2 21 1.2 19 1.1 17 1.1 15 1.0 FY2010 FY2011e FY2012e FY2013e ROE (%) ROCE (%) Debt / Equity (x) Source: Petronet & Ventura Research estimates Valuation & Recommendation We initiate coverage on Petronet LNG as a BUY with a Price Objective of Rs 151 (target PE of 11.0x FY2013) over a period of 15-18 months. At CMP of Rs 132.1, the stock is trading at 13.6x and 9.6x its estimated earnings for FY2012E & FY2013E representing a potential upside of ~13.6%. Strong revenue growth (26.1%) to Rs 21343.7 crore, 36.5% earnings growth to Rs 1028.7 crore in FY13 validates a re-rating of the stock. P/E band 200 180 160 140 120 100 80 60 40 20 0 4/9/2009 9/2/2009 2/2/2010 4/1/2011 5/5/2012 3/1/2013 11/16/2010 10/18/2011 11/21/2012 Date 8/22/2007 1/14/2008 6/11/2008 11/5/2008 6/28/2010 7/10/2011 1/26/2012 8/13/2012 CMP 5x 8x 11x 14x 17x- 13 - Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
    • - 14 - Stock Pointer 100 120 140 160 180 200 0 20 40 60 80 11000 13000 15000 -1000 1000 3000 5000 7000 9000 Date Date 8/22/2007 8/22/2007 1/14/2008 1/14/2008 EV 6/11/2008 CMP 6/11/2008 11/5/2008 11/5/2008 4x 4/9/2009 1x 4/9/2009 Source: Ace Equity, Ventura 9/2/2009 9/2/2009 2/2/2010 6x 2/2/2010 2x 6/28/2010 6/28/2010 11/16/2010 11/16/2010 8x P/BV bands 4/1/2011 3x 4/1/2011 EV/EBITDA bandsThis document is for private circulation, and must be read in conjunction with the disclaimer on the last page. 7/10/2011 7/10/2011 10x 10/18/2011 10/18/2011 4x 1/26/2012 1/26/2012 5/5/2012 5/5/2012 12x 5x Wednesday, 13th April, 2011 8/13/2012 8/13/2012 11/21/2012 11/21/2012 3/1/2013 3/1/2013
    • Stock Pointer Exhibit 01: Financials and Projections Profit & Loss Statement Key RatiosY/E March, Fig in Rs. Cr FY2010 FY2011e FY2012e FY2013e Y/E March, Fig in Rs. Cr FY2010 FY2011e FY2012e FY2013eNet Sales 10649.1 13065.5 15952.6 21343.7 Per Share Data (Rs)% Chg. 26.3 22.7 22.1 33.8 EPS 5.4 7.8 9.7 13.7Total Expenditure 9802.6 11858.7 14456.7 19323.5 Cash EPS 7.5 10.2 12.3 16.9% Chg. 30.2 21.0 21.9 33.7 DPS 3.2 3.0 3.0 3.0EBIDTA 846.5 1206.8 1495.9 2020.2 Book Value 29.8 34.8 41.1 50.0EBIDTA Margin % 7.9 9.2 9.4 9.5 Capital, Liquidity, Returns RatioOther Income 97.8 53.5 55.9 97.8 Debt / Equity (x) 1.1 1.3 1.4 1.2EBIT 944.3 1260.3 1551.8 2118.0 Current Ratio (x) 1.4 1.4 1.5 1.4Depreciation 160.9 185.6 194.8 237.8 ROE (%) 18.1 22.3 23.6 27.4Interest 184.0 200.0 264.1 335.5 ROCE (%) 18.7 20.2 20.4 24.2PBT 599.5 874.6 1092.9 1544.6 Dividend Yield (%) 2.5 2.3 2.3 2.3Tax Provisions 195.0 292.6 364.5 515.9 Valuation Ratio (x)Profit After Tax 404.5 582.1 728.4 1028.7 P/E 24.5 17.0 13.6 9.6Minority Interest - - - - P/BV 4.4 3.8 3.2 2.6Reported PAT 404.5 582.1 728.4 1028.7 EV/Sales 1.1 0.9 0.8 0.6PAT Margin (%) 3.8 4.5 4.6 4.8 EV/EBIDTA 14.3 10.0 8.1 6.0Raw Materials / Sales (%) 90.8 89.5 89.3 89.3 Efficiency Ratio (x)Employee Exp / Sales (%) 0.2 0.2 0.2 0.2 Inventory (days) 8.4 15.0 15.0 15.0Other Mfr. Exp / Sales (%) 0.1 0.1 0.1 0.1 Debtors (days) 17.3 18.0 18.0 18.0Tax Rate (%) 32.5 33.4 33.4 33.4 Creditors (days) 22.8 23.0 23.0 23.0 Balance Sheet Cash Flow StatementY/E March, Fig in Rs. Cr FY2010 FY2011e FY2012e FY2013e Y/E March, Fig in Rs. Cr FY2010 FY2011e FY2012e FY2013eShare Capital 750.0 750.0 750.0 750.0 Profit After Tax 404.5 582.1 728.4 1028.7Reserves & Surplus 1484.9 1862.7 2335.4 3003.0 Depreciation 160.9 185.6 194.8 237.8Minority Interest - - - - Working Capital Changes 225.1 -171.2 -33.9 -64.1Total Loans 2499.8 3301.7 4194.1 4665.6 Others 107.6 0.0 0.0 0.0Deferred Tax Liability - - - - Operating Cash Flow 898.1 596.6 889.2 1202.4Total Liabilities 4734.7 5914.4 7279.5 8418.7 Capital Expenditure -1046.1 -1064.2 -1271.4 -1117.7 Change in Investment -234.4 -96.0 -114.0 -135.5Gross Block 3549.5 4363.7 6589.7 7437.5 Cash Flow from Investing -1280.4 -1160.1 -1385.4 -1253.2Less: Acc. Depreciation 666.7 852.3 1047.0 1284.9 Proceeds from equity issue 0.0 0.0 0.0 0.0Net Block 2882.9 3511.4 5542.7 6152.6 Inc/(Dec) in Debt 218.1 801.9 892.4 471.5Capital Work in Progress 1318.4 1568.4 613.7 883.7 Dividend Paid -153.1 -204.3 -255.6 -361.1Investments 538.6 634.6 748.6 884.0 Cash Flow from Financing 65.1 597.6 636.8 110.5Net Current Assets 321.1 526.3 700.8 824.6 Net Change in Cash -317.3 34.1 140.6 59.7Deferred Tax Assets/Liability -326.2 -326.2 -326.2 -326.2 Opening Cash Balance 657.8 340.5 374.5 515.2Total Assets 4734.7 5914.4 7279.5 8418.7 Closing Cash Balance 340.5 374.5 515.2 574.8 Ventura Securities Limited Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai – 400079 This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation. - 15 - Wednesday, 13th April, 2011 This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.