Re: {LONGTERMINVESTORS} Re: Petronet LNG

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Rajesh Desai

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Jan 3, 2013, 7:05:57 AM1/3/13

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Antique

Company Update

Petronet LNG Limited - Fresh catalyst to benefit strong fundamental story

Investors raised concerns on slow progress and delay in completion of Ph-II of Kochi-Mangalore-Bangalore pipeline of GAIL affecting Kochi terminal ramp up in FY15e. Kerala Chief Minister announced on Dec 29, 2012 that right of way issues for GAIL's pipeline has been resolved, which we believe removes a major overhang from PLNG. Reiterate BUY!

Work on Kochi-Mangalore-Bangalore pipeline of GAIL to resume soon

The pipeline work which was hindered due to resistance from local people in Kerala on Right of Way issues is all set to resume with GAIL agreeing in-principle to hike the compensation to 30% of the fair value of the land and bring down the width of the land for laying pipeline to 10m in Kerala. Ph-II of the pipeline gives access to 4-5mmtpa of demand to Kochi terminal.

Pipeline sole connectivity to PLNG's near to complete 5mmtpa Kochi terminal

We understand that line pipes have already reached the site; the pipeline is expected to be completed by Dec 2013. Ph-II of pipeline connects Kochi terminal to majority of customers and national grid. The Ph-I of the pipeline is completed and Kochi terminal is on schedule to commission by March 2013.

APERC allowed LNG as fuel for power plants

APERC has selected four gas-based power plants to use LNG for generating power under the expensive power supply scheme (EPSS). This is big a positive for Petronet LNG as it opens up LNG opportunity for fuel starved power sector under regulatory framework with consumers consent.

Valuation and outlook

Conservative assumptions and attractive valuations

We are conservatively assuming Kochi terminal's volumes at 0.8/0.8/2.5/4.0/4.5 mmtpa in FY14/15/16/17/FY18e to arrive at our DCF based target price of INR196/sh, which implies 23% upside from current levels. We see upsides to Kochi terminal utilisation in FY15e. Reiterate BUY!