09-002- Petronet LNG – Stockwatch series

Stock

PETRONET LNG LTD (PLL)

Sector

Oil » GAS

Market

India

Ref No

09-002

Symbol

PETRONET

BSE at

532522

NSE at

PETRONET

Date YMD

09.12.14

CMP (11/Dec)

73.10

Target ST

108

Target LT

235

Year High

84.90

Year Low

31.60

ST Hold

4m

LT Hold

28 m

Face Value

10

% Down Peak

-12.72%

Downside

-18%

Upside

+50% ST
+275% LT

EPS 08-09A

6.91

EPS 09-10 Est.

11.20

EPS 10-11P

15.10

EPS11-12P

19.63

PE 08-09 A

4.63

PE 09-10 Est.

9.5

PE 10-11P

12

PE 11-12P

14

Div/share

1.75

Div Yield% CMP

2.40%

Buy Range

48B,58M,
75T ST

Sell Range

92~108 ST

TARGET

4 Mo

108

24 Mo

180

36 MONTHS

275

48 MONTHS

360

Notations

A = Actual; Est. = Estimated; *P = Projected; ST=Short Term; LT=Long Term; B= Best; M=Medium; T=Trading; Upward target could be higher by further 20% due to momentum buying.

Comments

The company’s expanded capacity at Dahej has become operational. As result, its quarterly sales have shot up from 2600 crores to 3400 crores. For 6 months ending Sep09, total sales have reached Rs 6000 crores. Based on latest quarterly performance, the company should clock sales of Rs 13000 crores by Mar2010 or for the year 2009-10.which is +55%. In future, the Kochi refinery will contribute additional 25% and 50% of revenue in 2 years starting end 2010 onwards. Further, the development of solid cargo port near its LNG terminal in joint venture with Adani group will contribute further revenue, being 26% owned it may not be eligible for equity accounting. Its effects are ignored.

The company is on solid growth path, growing at the clip of 35% in terms of volume and 55% to 75% in value terms depending on price realization. It has already secured gas supply from Qatar for Dahej project, and Australia for Kochi project from 28 to 20 years.

The only unknown variable will be how much Reliance’s Gas project will affect the company’s present arrangements. It is also not known whether the company has price escalation or de-escalation clause in its agreement with Qatar and Australia. Reliance is a subsequent phenomenon. Qatar being the world’s largest and cheapest supplier of gas will ensure that Petronet will remain highly competitive

Of late; Gas has become the cheapest, non pollutive and most efficient mode of energy. The use of oil will be relatively less. Due to emphasis on green technology and carbon emission control, the use of gas will be predominant in every industrial and consumer area. More and more cities are being converted to using gas (LNG and CNG) as the compulsory use of energy product to avoid pollution due to Auto vehicles. With more and more expansion of roads, infra structures, power plants and more production of automobiles, the use of gas is likely to be much higher than even anticipated.

The projections used above are Author’s projections based on past, present and future expansion plans. They may differ significantly from prominent brokers or research houses that draw upon published figures or projections from governmental sources. They usually do not include the present trend in the industry. When gas becomes plentiful, the use electricity will be reduced in household (already costly electric heaters are being replaced by LNG or Piped gas operated cheaper heaters.

The future of the world is on gas, not electricity or oil. This is why this author has been recommending gas based stocks.

Links

Company Website: http://www.petronetlng.com
Quarterly Results : Quarterly up to Sep09

Stock Behavior

The stock has been in pressure due to some negative or less optimistic scenario about the company. As result, the stock has been underperforming of late compared to the market. It is only recently that the stock has started rising higher breaking strong resistance at about Rs 65.

The December 09 quarterly numbers will justify the Author’s projections and there is every possibility that the stock may be rated upwards. The company has solid equity partners in the form of GAIL, ONGC, BPCL, and Oil India who are all cash rich companies. The company will not face any financial constraints at least for next 3 years. The company is less dependent on foreign investment or borrowings as result of which tight money markets abroad will not hurt it in meaningful way.

The stock should gain upward momentum once it exceeds Rs 80 and stay above it for at least 7 days. The stock may rise to Rs 108 to Rs 120 until mid April. It also depends on the Reliance effect – the Supreme Court judgment on RPOWER’s gas dependent project. If RIL wins, the RPOWER could become important customer of this company.

The company is also known as PLL or Petronet LNG Ltd.

Post-Purchase Care

+

Watch out for RIL’s gas price related policy and its actual production. There has been lot of hypes on Kaveri-Godavri basin gas project. We have to see two directions – what is the actual volume of gas at RIL, its cost structure, and whether RIL will be able to compete Qatar and Australia in gas supply.

Also watch out world equity market. It is likely that “currency contagion” may be developing soon, which may hurt global equity markets. For the time being, it Is advisable to trade 70% of stocks, always keeping 30% intact for long term. If the global equity market does come down significantly, one may get excellent chance to get into this stock at cheaper price at a time when the company is in full production throttle.

Over 4 years time frame, this stock could go up to over Rs 450 or more, presuming there is no equity dilution and company’s Kochi project goes on stream as scheduled. Also, the stocks during good time always overshoot by 20% than fair market value, what we call “momentum buying”. If those stage is reached early, get out at that time and do not enter unless stock corrects significantly (over 40% from Peak)

This is perhaps one of the Best Buys into Indian market even at elevated level.

SUITABILITY OF INVESTORS

Kalidas is extremely bullish on this company. This is the stock for all kind of investors, including retirees and widows. Until now, the dividend pay out has not been significant. Presuming overall sales of Rs 24000 crores in less than 3 years, expanded 8% post tax profit margin, the future profit of Rs 1920 crores is expected of which 25% may be reserved for dividend or Rs 480 crores or Rs 6.4 per share. (there are 75 crores shares outstanding) The future dividend yield based on current price of Rs 73 works out to 8.76%, much higher than current bank deposit rates.

STOCK SWAP

If you own the following stocks or slow movers, you may sell them to raise the cash and Buy the above stock. The idea is to enhance the potential return in short time frame. Please note that in down market, such swaps may worsen your position. However, if you are careful as well as lucky to have bought stocks near low, the SWAP will not only recover but also make handsome gain.

SELL

Any stock between Rs 75 to Rs 1500 where your losses exceed 30% to 50%. This stock will smartly recover your money early and also give you sizeable return. For Instance, you are losing Rs 300 in say, LT. Sell it and buy this stock, You will get 20 shares for each LT sold. Also put in fresh money and increase the quantity by 50%, so that you have 30 shares of this stock for every existing LT sold. . Your return will be higher by 50%. LT is used as an example only.

YOU RECEIVE

Use any losers or slow movers of high value you have

BUY

PETRONET LNG

YOU PAY

73/share

POST RECOMMENDATION CHANGES

The situation may materially change from current scenario that could affect the stock recommendations. Following actions are suggested. This will be filled up later by the Author when necessary. This is only the format in which the future comments will be given

Date Changed

SUGGESTED ACTIONS

REASONS IN BRIEF

Authored by Anil Selarka (Kalidas). CAUTION:  The market may not behave as intended. The above opinion is given subject to no claim, liability or responsibility.

Copyrights © Anil Selarka (Kalidas) Published for Blog – Financial Wisdom of Kalidas – http://anilselarka.com