PLNG’s Q1 was in line with our forecasts and Bloomberg consensus estimates, with Ebitda of Rs 10.5 bn (-3% q-o-q) and PAT of Rs 6.4 bn (+2% q-o-q). Dahej utilisation additional declined to 87% (vs 93% in Q4, our estimate 85%). The Kochi terminal ramp-up has been slower, with utilisation of 24% (vs 22% in Q4 and our estimate of 27%). Per unit gross/Ebitda margins had been also in line, and rose 1-3% q-o-q due to a 5% Kochi tariff hike.
Domestic gas ramp-up and new competing capacity make Dahej vulnerable
With weak macro, increasing new domestic gas production and elevated LNG costs, India’s LNG imports outlook is weak. We continue to think that Dahej terminal is vulnerable. Despite its 90-95% capacity tied up in lengthy-term (LT) contracts, we anticipate Dahej’s utilisation to be beneath 90% more than FY22-24F (vs 102-111% more than FY15-20). In our view, Dahej’s vulnerability will rise as current LT contracts start to expire from 2027-28.
Large capex plans a essential be concerned Kochi tariff cuts delayed, but look specific to us
Recently (Q4), PLNG talked of aggressive capex plans of up to ~Rs 185 bn. The plans contain new brownfield and greenfield re-gas capacity, and plans in new/unrelated regions like LNG dispensing, and compressed biogas (CBG). At this stage these plans look aspirational. However, we think firm selection to go ahead would be taken negatively by investors. With a 5% hike in April, Kochi tariff at Rs 87/mmbtu is 50-60% greater vs Dahej/peer terminals. PLNG’s personal promoter off-takers are searching for tariff cuts, and negotiations have been sophisticated. We now assume a tariff reduce to Rs 70/mmbtu from Apr-22 (earlier Apr-21).
Near-term volume and earnings peak behind sustain Neutral
We have additional reduce our FY22F/23F earnings by 3-4% primarily on decrease volume assumption at Dahej. We continue to think that PLNG’s close to-term volumes/earnings peaked in FY20/ 21, respectively, and we see no earning development more than FY21-24F. We roll forward our DCF-based valuation to Mar-23F (from Sep-22F). Due to decrease close to-term earnings, and greater longer-term capex assumptions, our TP declines to Rs 235 (from Rs 270). PLNG’s dividend yields at 5-6% are desirable, and valuations at 11.7x FY23F are not highly-priced. But, with weak earnings, we anticipate PLNG to stay variety-bound like in the last couple of years. In India gas, our preferred picks are downstream names like Gujarat Gas, IGL, MGL and GUJS (all rated Buy).