CMP 120.00

Target Price 136.00

ISIN: INE347G01014

OCTOBER 4th

2013

PETRONET LNG LIMITED Result Update: Q1 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Oil & Gas

BSE Code 532522

Face Value 10.00

52wk. High / Low (Rs.) 175.15/106.10

Volume (2wk. Avg.) 59000

Market Cap (Rs. in mn.) 90000.00

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 314674.40 372574.49 424734.92

EBITDA 20252.90 21374.30 22358.30

Net Profit 11492.80 12184.31 12869.67

EPS 15.32 16.25 17.16

P/E 7.83 7.39 6.99

Shareholding Pattern (%)

1 Year Comparative Graph

PETRONET LNG LTD S&P BSE SENSEX

SYNOPSIS

Petronet LNG Ltd is one of the fastest growing

world-class companies in Indian energy sector

formed as a Joint Venture by the Government of

India to import LNG and set up LNG terminals in

the country.

Revenue for the quarter rose by 20.11% to Rs.

84442.00 million from Rs. 70304.10 million,

when compared with the prior year period.

The company’s net profit decreased to Rs.

2253.20 million against Rs. 2708.50 million in the

corresponding quarter ending of previous year, a

decrease of 16.81%.

Petronet LNG has planned to increase its LNG

regasification capacity from present 10 MMTPA

to 25 MMTPA in the next 4-5 years.

Net Sales and PAT of the company are expected to

grow at a CAGR of 23% and 7% over 2012 to

2015E respectively.

Petronet LNG Ltd will be getting 1.5 million tonne

Gorgon gas from Australia for 20 years beginning

January 2015 at Kochi.

The Company has signed a binding term sheet

with Gangavaram Port Ltd. for setting up LNG

Terminal, having a capacity of 5 MMTPA.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Petro net LNG Ltd 120.00 90000.00 15.32 7.83 2.02 25.00

Indian Oil Corporation Ltd 208.75 507806.30 100.34 2.08 0.88 62.00

Castrol India Ltd 303.60 149852.00 9.74 31.11 23.08 105.00

Gulf Oil Corporation Ltd 83.00 8179.50 5.29 15.60 0.74 110.00

Recommendation & Analysis - ‘BUY’

Petronet LNG Ltd reported revenue of Rs. 84442.00 mn compared to Rs. 70304.10 mn in previous year period.

The Company has posted a net profit of Rs. 2253.20 million for the quarter ended June 30, 2013 as compared to

Rs. 2708.50 million for the quarter ended June 30, 2012. Petronet LNG has planned to increase its LNG

regasification capacity from present 10 MMTPA to 25 MMTPA in the next 4-5 years. GSPC has booked a capacity

of 2.25 MMPTA on a long term and firm basis in the Dahej terminal of Petronet LNG Ltd. Relevant agreement to

this effect with a 20-year term.

The Company planning to achieve the strategic goal of developing storage and re-gassification capacity of 30

MMTPA by 2020, the Company is keeping provision for further enhancement of Dahej Terminal from 15 to 20

MMTPA. In addition, it is discussing with the concerned authorities of Andaman & Nicobar Islands regarding

feasibility of supply of LNG through small barges and creating LNG hubs in the Island. In view of increasing

concerns about release of greenhouse gases, the time is not far off for the conversion of shipping industry from

conventional fuel to LNG. The Company has kept provision for reloading of small ships from Kochi Terminal for

future requirement of coastal trade of LNG and bunkering. Over FY2012-15E, we expect the company to post a

CAGR of 23% and 7% in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Petronet

LNG Ltd’ with a target price of Rs. 136.00 on the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q1 FY14,

Petronet LNG Ltd, one of the fastest growing world-

class companies in Indian energy sector in India,

reported its financial results for the quarter ended

30th June, 2013.

Months Jun-13 Jun-12 % Change

Net Sales 84442.00 70304.10 20.11

PAT 2253.20 2708.50 (16.81)

EPS 3.00 3.61 (16.81)

PBIDT 4130.40 4837.10 (14.61)

The company’s net profit decreased to Rs. 2253.20 million against Rs. 2708.50 million in the corresponding

quarter ending of previous year, a decrease of 16.81%. Revenue for the quarter rose by 20.11% to Rs. 84442.00

million from Rs. 70304.10 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 3.00 a share during the quarter, registering 16.81% decrease over previous year period.

Profit before interest, depreciation and tax is Rs. 4130.40 millions as against Rs. 4837.10 millions in the

corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Q1 FY14 Q1 FY13

Other Expenses 785.20 770.30

Employee Benefit Expenses 85.80 136.80

Depreciation & Amortization Expenses

467.00 468.00

Cost of Material Consumed 79593.00 79425.10

Latest Updates

• Petronet LNG Ltd has planned to increase its LNG regasification capacity from present 10 MMTPA to 25

MMTPA in the next 4-5 years. The steps being taken towards this are three fold:

� Commissioning of the Kochi terminal with a capacity of 5 MMTPA

� Further expansion of the Kochi terminal with capacity of 5 MMTPA

� Setting up a Greenfield terminal at Gangavaram, Andhra Pradesh with a capacity of 5 MMTPA

• GSPC Books long term re-gasification capacity in Dahej Terminal of Petronet LNG.

• GSPC has booked a capacity of 2.25 MMPTA on a long term and firm basis in the Dahej terminal of Petronet

LNG Ltd. Relevant agreement to this effect with a 20-year term.

Future Plans

• The Company has signed a binding term sheet with Gangavaram Port Ltd. for setting up LNG Terminal,

having a capacity of 5 MMTPA. The terminal is likely to be completed by the year 2016.

• The 2nd pipeline will connect Kochi to Bangalore & Mangalore is expected to be completed by next year end.

COMPANY PROFILE

The company incorporated on April 2, 1998 and commencement of commercial operations from April, 2004.

Petronet LNG Limited engages in the import, regasification, and supply of liquefied natural gas (LNG) in India.

The company owns and operates LNG regasification terminal with the name plate capacity of 10 MMTPA at Dahej

in the state of Gujarat. It supplies LNG primarily to Bharat Petroleum Corporation Limited, GAIL (India) Limited,

and Indian Oil Corporation Limited.

Petronet LNG is also drawing keen interest from global energy industry stars. While French national gas

company Gaz de France (GDF) is the strategic partner, Ras Laffan Liquefied Natural Gas Company Limited, Qatar,

has signed an LNG sale and purchase agreement (SPA) with the company for the supply of LNG to India.

• LNG supply contract with Ras Gas, Qatar & Exxon Mobil, Australia

• Gas Sales Agreement with GAIL, IOCL & BPCL back to back with SPA

• Time Charter Agreement with established consortium

• Entire Fuel cost pass through including exchange rate.

� LNG Terminals

• Dahej LNG Terminal

The Company has set up South East Asia's first LNG Receiving and Regasification Terminal with an

original nameplate capacity of 5 MMTPA at Dahej, Gujarat. The capacity of the terminal has been

expanded to 10 MMTPA and the same has been commissioned in June, 2009. The expansion involved

construction of 2 additional LNG storage tanks and other vaporization facilities. The terminal is meeting

around 20% of the total gas demand of the country.

• Kochi LNG Terminal

Petronet LNG’s second LNG Terminal , located at Kochi in the state of Kerala. This commissioning cargo

has come from RasGas, Qatar, a reliable supplier and world leader in LNG which supplies 7.5 mmt per

year of LNG to Petronet at its Dahej Terminal. The terminal shall have a capacity of 5 MMTPA. The

terminal at Kochi will help in meeting enormous demand of natural gas for Power, Fertilizers,

Petrochemicals and various other industries in the Southern States.

� New Third Terminal at East Coast

• Proposed Capacity: 5 Mmtpa

• Location: Gangavaram, Andhra Pradesh

• Regasification Scheme: Indirect Fluid using ambient air heater.

� Progress on Schedule

� Regasification Scheme: Indirect fluid using ambient air Heater

� PFR Completed

� DFR under Preparation

� Promoters of the Company

• GAIL (India) Limited (GAIL),

• Oil & Natural Gas Corporation Limited (ONGC),

• Indian Oil Corporation Limited (IOCL)

• Bharat Petroleum Corporation Limited.

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 7500.00 7500.00 7500.00 7500.00

Reserves and Surplus 27697.80 36996.90 49181.21 62050.87

1. Sub Total - Net worth 35197.80 44496.90 56681.21 69550.87

Non Current Liabilities

Long term borrowings 29341.60 27182.20 25007.62 23257.09

Deferred Tax Liabilities 3630.00 3910.00 4183.70 4447.27

Long Term Provisions 45.60 33.70 35.39 37.15

2. Sub Total - Non Current Liabilities 33017.20 31125.90 29226.71 27741.52

Current Liabilities

Short Term Borrowings 998.10 0.00 0.00 0.00

Trade Payables 12685.50 22973.50 29865.55 35838.66

Other Current Liabilities 7972.00 9966.20 11560.79 13063.69

Short Term Provisions 2239.80 2265.70 2311.01 2380.34

3. Sub Total - Current Liabilities 23895.40 35205.40 43737.36 51282.70

Total Liabilities (1+2+3) 92110.40 110828.20 129645.27 148575.09

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 25214.30 23519.80 22170.48 20973.27

Intangible assets 0.30 59.00 64.90 70.09

Capital Work in Progress 32900.30 43305.10 54131.38 64957.65

a) Sub Total - Fixed Assets 58114.90 66883.90 76366.76 86001.02

b) Non-Current Investment 1398.80 1398.80 1398.80 1398.80

c) Long Term loans and advances 1535.20 1173.00 1208.19 1268.60

1. Sub Total - Non Current Assets 61048.90 69455.70 78973.75 88668.42

Current Assets

Inventories 7123.50 10366.30 13268.86 15949.73

Trade receivables 12858.90 16898.00 20277.60 23522.02

Cash and Bank Balances 9839.10 12685.30 15476.07 18571.28

Short-terms loans & advances 1153.70 1396.70 1620.17 1830.79

Other current assets 86.30 26.20 28.82 32.85

2. Sub Total - Current Assets 31061.50 41372.50 50671.52 59906.67

Total Assets (1+2) 92110.40 110828.20 129645.27 148575.09

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 226958.60 314674.40 372574.49 424734.92

Other Income 848.80 865.40 882.71 909.19

Total Income 227807.40 315539.80 373457.20 425644.11

Expenditure -208666.20 -295286.90 -352082.89 -403285.80

Operating Profit 19141.20 20252.90 21374.30 22358.30

Interest -1773.90 -1184.10 -1065.69 -1150.95

Gross profit 17367.30 19068.80 20308.61 21207.36

Depreciation -1841.90 -1866.00 -1903.32 -1941.39

Profit Before Tax 15525.40 17202.80 18405.29 19265.97

Tax -4950.00 -5710.00 -6220.99 -6396.30

Net Profit 10575.40 11492.80 12184.31 12869.67

Equity capital 7500.00 7500.00 7500.00 7500.00

Reserves 27697.80 36996.90 49181.21 62050.87

Face value 10.00 10.00 10.00 10.00

EPS 14.10 15.32 16.25 17.16

Quarterly Profit & Loss Statement for the period of 31st

Dec, 2012 to 30th Sep, 2013E

Value(Rs.in.mn) 31-Dec-12 31-Mar-13 30-Jun-13 30-Sep-13E

Description 3m 3m 3m 3m

Net sales 84227.80 84656.30 84442.00 86975.26

Other income 149.10 202.50 152.40 160.02

Total Income 84376.90 84858.80 84594.40 87135.28

Expenditure -78939.10 -80312.40 -80464.00 -82626.50

Operating profit 5437.80 4546.40 4130.40 4508.78

Interest -291.30 -247.00 -240.20 -232.99

Gross profit 5146.50 4299.40 3890.20 4275.79

Depreciation -471.50 -468.00 -467.00 -474.01

Profit Before Tax 4675.00 3831.40 3423.20 3801.78

Tax -1490.00 -1380.00 -1170.00 -1292.61

Net Profit 3185.00 2451.40 2253.20 2509.18

Equity capital 7500.00 7500.00 7500.00 7500.00

Face value 10.00 10.00 10.00 10.00

EPS 4.25 3.27 3.00 3.35

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 14.10 15.32 16.25 17.16

EBITDA Margin (%) 8.43% 6.44% 5.74% 5.26%

PBT Margin (%) 6.84% 5.47% 4.94% 4.54%

PAT Margin (%) 4.66% 3.65% 3.27% 3.03%

P/E Ratio (x) 8.51 7.83 7.39 6.99

ROE (%) 30.05% 25.83% 21.50% 18.50%

ROCE (%) 32.02% 30.86% 28.50% 26.18%

Debt Equity Ratio 0.86 0.61 0.44 0.33

EV/EBITDA (x) 5.77 5.16 4.66 4.23

Book Value (Rs.) 46.93 59.33 75.57 92.73

P/BV 2.56 2.02 1.59 1.29

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.120.00, the stock P/E ratio is at 7.39 x FY14E and 6.99 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.16.25 and

Rs.17.66 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 23% and 7% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 4.66 x for FY14E and 4.23 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.59 x and 1.29 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.136.00 for Medium to Long term

investment.

INDUSTRY OVERVIEW

After liberalisation in 1990s, India witnessed an unforeseen economic growth, which was majorly driven by

demographic changes, rapid industrialisation and a robust, service-oriented business environment. Indian gross

domestic production (GDP) enhanced more than 3.3 times from 2002 to 2012.

Subsequently, flourishing economy gave way to increase in the country’s energy demand which has risen by

more than 70 per cent. With a humungous surge in automobiles, power and fertilisers, oil and gas (O&G) as a

source of energy acknowledges more than 45 per cent of the country’s total energy consumption. As per the

industry experts, India is on its way to become the third largest energy consumer in the world by 2020.

Over the last few years, Indian Government has also played a pivotal role in strengthening the core industrial

sector. For instance, the introduction of the New Exploration Licensing Policy (NELP) was aimed at intensifying

activities in O&G exploration, while the administration allowed 100 per cent foreign direct investment (FDI) in

the sector.

India’s O&G sector is a promising one as there is a huge untapped potential basin while many large blocks

offshore are unexplored. India’s total hydrocarbon reserves are projected to be around 2 billion metric tonne of

Oil Equivalent (bmtoe). Also, the reserves-to-production ratio for the country works out to be 25 years with the

current oil production level of around 815,000 barrels per day (bpd) and estimated reserves of 1.2 billion metric

tonne (bmt). Analysts foresee a bright future for the gas sector as well wherein reserves-to-production ratio is

over 30 years (the current production level being around 40 billion cubic metres [bcm] per annum on an

estimated reserves base of around 1,500 bcm).

Thus, there lies a great opportunity for international and domestic companies to participate in the industry’s

growth and derive benefits out of it.

Key Statistics

• Crude oil output stood at 3.18 million metric tonnes (mmt), or 751,700 bpd, according to data released by

the oil ministry.

• India’s refining capacity is 215.066 million tonnes per annum (mtpa) and is ranked fourth in the world.

This figure is projected to increase to 232.3 mtpa by the end of FY14 and 310.9 mtpa by the end of FY17.

India is also a net exporter of petroleum products such as petrol, diesel, jet fuel and naphtha.

The country’s energy demand is expected to more than double by 2035, from less than 700 million

tonnes of oil equivalent (mtoe) currently, to around 1, 500 mtoe, according to the oil ministry.

• Refinery throughput also recorded a remarkable growth in July 2013. Refinery throughput increased by

4.8 per cent to 19 million tonnes (mt) in July 2013, as per the data released by Petroleum Planning and

Analysis Cell (PPAC). This growth was driven by better capacity utilisation by Indian refiners who utilised

104.8 per cent of their installed capacity in the reported month.

Diesel & Petrol

India is the world's fourth-largest petroleum consumer and Crude oil production, as indicated by the core sector

index, accounts for over 5 per cent of India's index of industrial production (IIP).

The country consumed 5.4 mt of diesel in July 2013, according to data compiled by the Centre for Monitoring

Indian Economy (CMIE).

Gas

• India's natural gas aggregated to 3.01 bcm in July 2013.

• Gas output from all sources is anticipated to be around 105 million metric standard cubic metres per day

(mmscmd) in 2013-14 and is expected to touch 175 mmscmd by 2016-17, stated M. Veerappa Moily, the

Petroleum and Natural Gas Minister.

Recently, the Cabinet Committee on Economic Affairs has agreed upon a gas pricing formula suggested by

the C. Rangarajan panel. This would come into effect from April 2014 and is expected to offer the

explorers nearly double the price for natural gas than what it is at present.

Key Developments and Investments

• Indian engineering major Larsen & Toubro's hydrocarbon business has been awarded orders worth Rs

807 crore (US$ 126.6 million) for petrochemical complexes of oil companies in the country. The scope of

projects envisages jobs for supply of cracking furnace modules and parts, supply of equipment,

engineering, procurement and construction execution of cryogenic ethylene package, civil, structural,

mechanical, electrical and instrumentation for petrochemical complexes of oil companies in India.

L&T's recently installed subsidiary, L&T Hydrocarbon Engineering, aims at making a space in global

hydrocarbon business.

• In a bid to mark its debut in the Indian O&G sector, Saudi Aramco, the world's biggest oil producer,

intends to buy up to 30 per cent stake with a crucial management role in a huge petrochemicals project in

Gujarat. The company is negotiating terms with ONGC Petro additions Ltd (OPaL). The behemoth has

planned an investment of around Rs 19, 500 crore (US$ 3.06 billion) for the Indian project.

• Cairn India, the largest private oil producer, plans to invest US$ 3 billion in its energy assets in the

country, major portion of which would be deployed to develop the potential Barmer block. Barmer

Rajasthan is India’s biggest oilfield to which Cairn is the operator. The company might increase crude

production from Barmer blocks from the current 180,000 bpd to 210-215,000 bpd by the end of 2013-14.

Government Initiatives

In order to cure the adverse effects of natural calamity that recently happened in the state of Uttarakhand and to

bring it back on the track of progress, the Uttarakhand Government has inked a Memorandum of Understanding

(MoU) with Indian Oil Corporation and SIDCUL. The agreement aims at the development of natural gas and

renewable energy infrastructure in the state.

Indian Oil and the State Government will jointly work-out on an action plan on enhancing the natural gas and

renewable energy infrastructure in Uttarakhand, which will eventually facilitate a greater boost to the state’s

social-economic development.

Meanwhile, Gujarat Info Petro Ltd, a subsidiary of Gujarat State Petroleum Corporation, has inked an MoU with

Hungary-based Cason Engineering Plc. Cason develops, manufactures and implements systems for gas

distribution network monitoring. This agreement would offer automation services for O&G companies in India.

Road Ahead

The Indian Oil Ministry anticipates that the country’s energy demand would expand by more than double by

2035; from less than 700 mtoe today to around 1, 500 mtoe. Thus meeting this requirement is highly essential to

ensure the nation’s economic growth. The Indian Government is not only working towards self-sufficiency in this

regard, but is also devising operating philosophies and favourable framework of policies that would be

instrumental for exploring and developing of energy resources in the most efficient way.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

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