MF Global India - Petronet LNG Q3FY08 ResultsUpdate (Downgrade to Sell / Target Rs 84)

Margin surprise on spot volumes

Results were much higher than our estimates due to higher trading gains on spot cargoes and lower shipping charges.
EBIDTA was up by 33.9% at Rs 2,320mn and net profit was up by 54% at Rs 1,311mn. Net sales were flat at Rs 15.8bn.
We raise our FY08E EPS estimates by 5.4% and for FY09E by 1.6% to factor in higher trading gain on spot volumes, than earlier expected. We raise our 12-month DCF-based target price to Rs 84 due to a change in estimates.
We downgrade our rating on the stock from Underperformer to Sell as we maintain our negative outlook on regas charges and we believe that the stock is trading at a significant premium to its fair value.

Increase in spot volumes drives top-line growth

Net sales were flat at Rs 15.8bn YoY as volumes were flat YoY and lower by 3.5% QoQ due to constrained capacity.
Total regassified quantity was higher by 1% at 80 trillion btu, of which 19 trillion btu was spot volume (i.e. 6 spot cargoes).

EBIDTA rises by 34% due to spot volumes

EBIDTA for Q3FY08 was higher by 34% YoY at Rs 2,320mn, largely caused by higher gains on spot volumes apart from the annual escalation of 5% in regassification charges.
We estimate that trading gains on spot volumes would have contributed ~Rs 416mn, that is, contribution of 18% to EBIDTA.
Other expenditure was lower by 19% at Rs 262mn due to higher base last year, but higher than Q2FY08 by 18%.

Net profit growth matches expectation

Interest expense was down by 7% to Rs 256mn while other income was up by 36% to Rs 120mn due to higher interest and dividend income on investments. Depreciation charges were flat at Rs 257mn.
Net profit grew by 54% at Rs 1,311mn against our estimate of Rs 1,184mn. EPS stood at Rs 1.7 for the quarter.

Valuation & Outlook

PLL is currently quoting at FY09E P/E of 16.7x and EV/EBIDTA of 9.4x.
At our target price, PLL will be valued at FY09E P/E of 13.1x.