Petronet LNG Research:Credit

Petronet LNG Research:Credit suisse
RAting:Underperform
CMP:Rs 102

Credit Suisse maintains ‘underperform’ rating on Petronet LNG. The company’s third-quarter earnings were ahead of expectations due to income on sales to Ratnagiri Gas and Power (RGPPL, erstwhile Dabhol). While Petronet LNG imposes re-gasification tariff on the 5 million tones (mt) from RasGas, it has a fixed price contract for the supply of 1.5 mt of re-gasified LNG to RGPPL till December ’08, with the ability to keep any upside due to lower procurement costs and efficiency. Of the 1.5 mt committed, 1.25 mt will be sourced from RasGas, while the rest will be sourced on spot — this 0.25 mt is where Petronet LNG sees benefits of lower sourcing costs. Total regasified volumes declined 3.5% quarter-on-quarter (q-o-q), but earnings per share (EPS) increased by 13%. The momentum in earnings is likely to continue. Increase in regasification capacity at Dahej and the new facility at Kochi are likely to contribute to growth in earnings. However, with significant new domestic gas discoveries, utilisation levels may fall, without which, current valuations seem stretched. Petronet LNG aims to diversify into power generation, but this has not been finalised as yet.