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 further 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 were 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, rising new domestic gas production and elevated LNG prices, India’s LNG imports outlook is weak. We continue to believe that Dahej terminal is vulnerable. Despite its 90-95% capacity tied up in long-term (LT) contracts, we expect Dahej’s utilisation to be below 90% over FY22-24F (vs 102-111% over FY15-20). In our view, Dahej’s vulnerability will rise as existing LT contracts begin to expire from 2027-28.
Large capex plans a key worry; Kochi tariff cuts delayed, but look certain to us
Recently (Q4), PLNG talked of aggressive capex plans of up to ~Rs 185 bn. The plans include new brownfield and greenfield re-gas capacity, and plans in new/unrelated areas like LNG dispensing, and compressed biogas (CBG). At this stage these plans seem aspirational. However, we believe firm decision to go ahead would be taken negatively by investors. With a 5% hike in April, Kochi tariff at Rs 87/mmbtu is 50-60% higher vs Dahej/peer terminals. PLNG’s own promoter off-takers are seeking tariff cuts, and negotiations have been advanced. We now assume a tariff cut to Rs 70/mmbtu from Apr-22 (earlier Apr-21).
Near-term volume and earnings peak behind; maintain Neutral
We have further cut our FY22F/23F earnings by 3-4% mainly on lower volume assumption at Dahej. We continue to believe that PLNG’s near-term volumes/earnings peaked in FY20/ 21, respectively, and we see no earning growth over FY21-24F. We roll forward our DCF-based valuation to Mar-23F (from Sep-22F). Due to lower near-term earnings, and higher longer-term capex assumptions, our TP declines to Rs 235 (from Rs 270). PLNG’s dividend yields at 5-6% are attractive, and valuations at 11.7x FY23F aren’t expensive. But, with weak earnings, we expect PLNG to remain range-bound like in the last few years. In India gas, our preferred picks are downstream names like Gujarat Gas, IGL, MGL and GUJS (all rated Buy).