Buy Petronet LNG; target of Rs 285: Sharekhan

Sharekhan's research report on Petronet LNG

Q3FY22 adjusted PAT of Rs. 892 crore (up 10% y-o-y) was 25% above our estimate led by higher trading margin and inventory gain which offsets weak re-gas volume of 208 tbtu (down 11% y-o-y). Reported PAT of Rs. 1,144 crore (up 30% y-o-y) has a benefit of Rs. 348 crore related to “Use or Pay charges”. Dahej re-gas volumes declined by 11.7% y-o-y to 196 tbtu (utilization of 87.9%) and Kochi re-gas volume declined by 20% q-o-q to 12 tbtu (utilisation of 18.8%). Weak volumes were a result of elevated spot LNG prices ( $25-26/mmBtu currently). Use or Pay charges” of Rs. 348 crore reflect P-LNG’s ability to protect earnings if customers offtake volume below contractual agreement and the same re-enforces confidence on earnings visibility for P-LNG. Dahej expansion projects on track and to be completed in next three years.

Outlook

Valuation is attractive at 9.3x/8.5x its FY23E/FY24E EPS, given earnings visibility, high RoE, and FCF/dividend yield of 9%/6%. Hence, we maintain a Buy on Petronet LNG with an unchanged PT of Rs. 285.