Buy Petronet LNG; target of Rs 410: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

PLNG’s 1QFY26 revenue came in line, while EBITDA was 5% below our estimate at INR11.6b. Marketing margins missed our estimate as spot volumes were nil for the quarter, owing largely to muted power demand. PAT came in line with our estimate as other income was above estimate. EBITDA/PAT, adj. for UoP provisions (INR1.4b), stood at 6%/20% above our estimates. Total volumes came in 6% above our estimate, primarily due to higher third-party and service cargos. Dahej utilization was 8% above estimates, while Kochi utilization stood 18% below est. We note that Spot LNG prices remain elevated at USD13/mmbtu in Jul’25’td (INR12.4/mmbtu in 1QFY26).

Outlook

PLNG trades at 9.7x FY27E EPS, compared to its historical one-year forward P/E of 10.9x. Under a variety of bearish scenarios, our DCF-based valuation implies -4% to 21% upside from the current price. Our DCF-based TP of INR410 (WACC: 11.2%, TG = 2%) assumes a 10% tariff cut in FY28, followed by a 4% increase for both the terminals. While we have incorporated the full capex for the petchem plant, we value it conservatively at 0.5x FY29E P/B and discount this back to FY27.