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Its a buy call for Petronet LNG-Target Rs. 220

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Its a buy call for Petronet LNG-Target Rs. 220

For the increasingly gas-starved Indian market, Petronet LNG Ltd is undoubtedly the biggest beneficiary due to its de-risked business model of charging fixed tariffs for supplying R-LNG. It enjoys the first mover advantage in this space with its 10 MMTPA LNG terminal at Dahej and taking advantage of the favorable economics of this industry, the company is planning to double its capacity to 20 MMTPA by end-FY15. It is also expanding its Dahej capacity by 5 MMTPA and setting up a greenfield LNG terminal of 5 MMTPA in Kochi. Commissioning of the Kochi terminal is expected by Dec 2012 and expansion of Dahej capacity to 15 MMTPA by Mar 2015. Significant shortfall in domestic gas supply going forward, active sourcing of LNG contracts and the first mover advantage combines to position Petronet as an attractive investment opportunity.

The company is optimally placed to take full advantage of the growing demand-supply gap (178 mmscmd by FY15) of natural gas in the Indian market. It has tied up long term supplies of 7.5 MMT from RasGas, Qatar, 1.44 MMT from Gorgon, Australia and is negotiating supply of 2.5 MMT from Gazprom. The derisked nature of the business stems from the GSPA which provides for escalation in regas tariff of 5% per annum, with the tariffs translating into project IRR of 16%. Moreover, the company purchases spot LNG cargoes on which marketing margins are also charged and it also provides regasification services to customers. The locking in of IRR (16%) on long term cargoes, with additional upside from marketing margin on spot cargoes, result in a series of sustainable & predictable cash flows from the business.

Going forward, we expect sales CAGR of 35.3% & net profit CAGR of 32% during FY11-13E owing to higher capacity utilization at Dahej & commissioning of Kochi. We estimate further capex of Rs 20 bn in Kochi and Rs 20 bn for expansion in Dahej. We estimate debt to rise from Rs 32.2 bn in FY11 to Rs 46.8 n in FY13 and free cash flows to improve from (Rs 3,231.1 mn) in FY12 to (Rs 1,689.7 mn) in FY13.

Our DCF valuation of its existing LNG terminal at Dahej as well as the upcoming Kochi terminal and capacity expansion at Dahej gives us a price target of Rs 220. Higher than expected demand for gas may result in higher marketing margins, which is an upside trigger for the stock.





Written by Fundamental Side

September 5, 2011 at 2:03 pm

Indian markets may open with a gap-up

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 Indian markets may open with a gap-up on Monday

The August expiry closed almost 12% lower which is an exceptional case in the last few years. If we look back, since 2008, it is for the first time the markets have closed with such a heavy loss in a single expiry. In the last week it was the Metal index & the BSE Banking index that lost the most by more than 4 per cent.

At the end of the week we saw narrow gains for most global indices. Investors were cautious before Bernanke’s speech to see if he will set out a plan that kick starts the stumbling US economy. Well, after the speech US markets recovered almost 4 % from their day’s low.

Based on charts, long-term trend is already spoiled as we have been indicating since first week of August. As we watch very closely on charts 4,750 turns out to be a long-term support for Nifty and it is utmost necessary that we get relief rally from the current levels, otherwise the sentiment could get more nervous.

Looking at the closing of US markets after the Bernanke’s speech there is good possibility that markets could open with some gap-up on Monday. In this bounce if Nifty manages to hold 4,875 next week we can expect a relief rally to further build-up, otherwise the down-trend will continue.

Next major support that appears as per the chart formations is 4,650 on Nifty and 15,650 on the Sensex. The volatility is likely to increase in next week as we have two holidays during the week and hence there could be a series of gap up or gap down openings.

Written by Rakesh Gandhi

August 30, 2011 at 2:34 pm

US market ‘down the line’

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US market ‘down the line’

US markets witnessed historic price correction and Dow Jones corrected 2076 (16.34%) points in three weeks time frame. Daily price chart formation suggests Dow Jones plunged from head and shoulder (H&S) pattern given below. The chart shows almost seven months long H&S formation was broken marked by huge volumes (relative basis). Neckline of H&S formation broken with tepid volumes which enhances the validity of the pattern.

This kind of price action calls for an intermediate top and current rally is due to oversold nature of the Index. I think any pullback in Dow Jones may face resistance near 12,100 to 11,800 levels and further downtrend would resume.  

As per Dow Theory (one of the oldest and basic theory of Technical Analysis), “averages should confirm” means any kind of large directional movement must be confirmed by all the averages. Dow Jones Transportation index and Financials delivered negative divergence prior and now Dow Jones Industrial Average confirms the same. On broader basis I think US market will continue to underperform or remain in consolidation mode.


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Written by Dwaipayan Poddar

August 24, 2011 at 6:16 pm

How long can the markets consolidate or stay in range?

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How long can the markets consolidate, or stay in a range?. This is one question which lingers on to the minds of all investors and traders in the current scenario.

Last week’s price action can be termed as a mixed reaction for our markets. The first three trading sessions of the week seem to suggested lacklustre movements in our markets. However the last two sessions were the game-changer. The reason we believe that is because, on Thursday the markets ended lower breaking the key support of 5550 and the sentiment at the end of Thursday was heavily bearish, however on Friday it was a complete turnaround for our markets. Nifty broke the key levels of 5600 and was in touching distance of breaking the 5650 mark at one point of time. We believe that such swift turnarounds in markets, especially with the kind of lacklustre weeks of trading, is good, as now any further positive momentum can result in more short covering coming across a lot of stocks.

There are two critical aspects technically, which is worth noting in the last 2-3 weeks of price action:

1. The rally in the second half of June from 5250 to 5750 levels. The retracement levels of 50% was exactly at 5495 (which apparently was the low on 12th July). The markets have thereafter not looked back at the support and have held on to it.

2. The next key aspect is the confluence of short term moving averages around the 5500-5550 mark. The zone was very critical from the technical point of view and a sustained close below this range could have triggered a next round of selling in the major indices.

Next week is an action packed week for our markets, as there is the RBI policy meet and also the expiry week for July contracts. We believe that the action would be more on the bullish side, as the global indices (especially Dow) look quite attractive on charts. Also we believe that the frontline stocks, which had a subdued last couple of weeks, will once again witness some strong price action. Short covering will also be witnessed in many of the oversold counters once the markets stable above 5650 levels.

Food for Thought: Since 2003 our markets have always had a positive close, with an average gain of 4.8% and a minimum gain of 0.5%.

Written by Kunal Bothra

July 28, 2011 at 1:35 pm