PL Stock Report: Petronet LNG (PLNG IN) - Q2FY24 Result Update – Volume growth to remain weak - Downgrade to 'HOLD'

Petronet LNG (PLNG IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs202 | TP: Rs208

Q2FY24 Result Update – Volume growth to remain weak

Quick Pointers:

§ The Board has approved a Rs 206.9 bn PDH-PP petchem plant at Dahej.

§ Utilization level at Dahej stood at 93% in Q2FY24.

Petronet LNG reported an EBITDA of Rs 12.1bn (up 3% QoQ, PLe: Rs 10.5bn) while PAT came in at Rs 8.2 bn (up 4% QoQ, Ple: Rs 6.7 bn). Total volumes at 223 Tbtu were down 3% QoQ but up 15% YoY. Although volumes increased on a YoY basis, long term volume growth prospects remain weak as the company will face competition post commissioning of upcoming LNG terminals and increase in domestic gas supply. The company has cash of Rs 18.2 bn and bank balance of Rs 60.1 bn, and has announced a capex of Rs 206.9 bn on a PDH-PP petrochemical plant. We believe this will stress the company’s balance sheet, and likely reduce its ROCE. Owing to these reasons we change our rating from ‘Buy’ to ‘Hold’ with a TP of Rs 208 based on 11x FY26 P/E

§ Operating profit improves YoY: Petronet LNG’s EBITDA at Rs 12.1 bn was up 4% YoY. Other income increased 66% YoY to Rs 1.6 bn while PAT at Rs 8.2 bn grew 10% YoY. For H1FY24, EBITDA came in at Rs 24bn, up 7.1% YoY. Similarly, PAT stood at Rs 16.1 bn, up 11% YoY.

§ Total volume declines sequentially: Total volume stood at 223 Tbtu, down 3% QoQ due to a 17% fall in regas volumes to 102 Tbtu. However, sales volume at 121 Tbtu were up 13% QoQ. Regas tariff for Dahej is Rs 59.91/mmBtu and Rs 85.09/mmBtu for Kochi. Regas revenue came in at Rs 5.9 bn. Trading gain stood at Rs 0.2 bn while inventory gain for the quarter was Rs 1.2 bn. The company is likely to face intense competition from upcoming LNG terminals and availability of incremental domestic gas from KG Basin. Going ahead we anticipate a 3% CAGR in volume growth over FY24-26E with total volumes at 864/864/915 Tbtu for FY24/25/26E.

§ Conference Call Highlights: 1) The company is going to set up a petrochemicals project of 750 KTPA of PDH & 500 KTPA of PP plant including propane and ethane handling facility at Dahej at an estimated cost of Rs 206.9 bn. The project will be commissioned after 4 years. 2) The Board has approved the offtake of 250 KTPA of Propylene and 11 KTPA of Hydrogen from Petronet Petrochemical Project at Dahej for a period of 15 years from the date of first supply of propylene and hydrogen by PLNG to Deepak Phenolics. From the year it will start operating at 100% capacity, the generation of profit will be to the range of Rs 20 bn. 3) The company plans to renew the Qatar gas contract by December 2023. 4) Expansion of Dahej terminal from 17.5 mmtpa to 22.5 mmtpa will be completed by March 2025.

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