Goldman Sachs Global Investment Research
ACTION
Removed from Asia Pacific Sell List
Petronet LNG (PLNG.BO <http://plng.bo/>) [Rs54.90]
Stock correction largely prices in business risks; raised to Neutral
What happened
We are removing Petronet LNG from the Asia Pacific Sell List, upgrading it
to Neutral following the sharp decline in its share price. Petronet is down
39% since we put it on the Sell List on November 9, 2007 (vs. a 27% fall in
the BSE Sensex). Over the past 12 months, Petronet has fallen 17% vs. the
Sensex's 11%. While we remain long-term cautious on Petronet-primarily on
the back of domestic supply of competing cheap natural gas picking up from
2HFY09E and the cost of long-term LNG from RasGas, Qatar, rising from
January
2009 in line with the crude oil benchmark-we believe the market is largely
pricing this in at current levels, reducing downside risk.
Current view
With the tight demand-supply scenario in the global LNG trade likely to
continue in the medium term, as we saw during our recent Middle East trip,
coupled with likely high crude oil prices, we believe LNG prices are
unlikely to come down. This will likely impact PLNG's ability to secure
affordable long-term contracts and reduce domestic appetite for expensive
spot LNG. High latent demand for gas in India and possible delays in
domestic gas ramp-up and pipeline rollout, however, may improve PLNG's
prospects, in our view.
Our new 12-month target price of Rs60 for PLNG (from Rs72 previously) is
based on our DCF valuation, giving full benefit to the existing
re-gasification capacity at Dahej as well as its proposed expansion at Dahej
and Kochi. We have modeled in long-term utilization of 90% for PLNG's
capacity of 12.5 mtpa after FY2013E and have kept re-gas charges constant at
Rs31.25/mmBtu from FY2014E.
Key risks include: (1) delay in production from domestic fields and slow
rollout of pipeline infrastructure delaying connectivity of domestic gas;
(2) earlier-than-expected commissioning of new LNG capacities would help
PLNG's off-takers tie up customers for longer periods; (3) lower capacity
utilization from Shell may increase demand for PLNG spot cargoes.
Investment list memberships
Neutral
Coverage View: Attractive
India . Gas
Nilesh Banerjee (Mumbai) +91(22)6616-9045 Goldman Sachs India SPL Durga Dath
(Mumbai) +91(22)6616-9047 Goldman Sachs India SPL Karthik Bhat (Bangalore)
(212) 934-6321 Goldman Sachs India SPL
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