Moneycontrol Bureau
State-run liquefied natural gas importer Petronet LNG shares rallied nearly 8 percent intraday Friday after better-than-expected earnings for July-September quarter but analysts are doubtful over consistency in performance.
CIMB has retained its reduce rating with a target price of Rs 280, saying the recent re-rating is justified only if the contract volumes are exceeded, which it believes is unlikely.
It expects net cash of Rs 5,440 crore at end-FY20. Hence, clarity on the use of cash will emerge as a key stock price driver. Higher volume at Dahej is the main risk to call, it says.
The brokerage house says Petronet's quarterly earnings have historically been volatile due to unpredictable marketing income, and any upside on earnings cannot be taken as sustainable.
It raised FY17 EPS by 3.3 percent, which takes into account the Q2 earnings beat but maintained FY18/19 EPS.
Bank of America Merrill Lynch has reiterated underperform rating on increased target price of Rs 286 as valuations appear rich, trading at 15-35 percent premium to 5-year averages.
According to its research note, in Q2 almost the entire demand growth appears to have accrued to Petronet. This is unlikely in Q3/Q4, with Dabhol plant start-up. As such, Q2 appears likely to be a peak quarter in terms of volumes and earnings, which should decline going forward. It says ability to ramp up volumes from here may disappoint the markets.
Profit during the quarter grew by 81.7 percent year-on-year to Rs 495.6 crore, driven by EBITDA (54.1 percent growth) and other income (up 137 percent). EBITDA beat was led by record Dahej volumes (184 TBTU), benefitting from a seasonally strong quarter, and higher blended margins. Margin expanded 480 basis points but revenue fell 12.3 percent to Rs 6,614.4 crore.
JP Morgan is underweight on the stock with a price target of Rs 347.75.
However, Deutsche Bank has rated the stock a buy with Petronet LNG being top pick amongst the gas utilities as it expects LNG demand in India to improve helped by lower LNG prices and increase in industrial activity.
Petronet, with 50 percent capacity expansion at Dahej from current quarter, is well placed to benefit from this demand surge, it feels.
The brokerage has raised its volume estimates resulting in 4-13 percent increase in FY17-19 EPS and 14 percent increase in target price to Rs 415.
Key risks according to the firm are higher spot LNG price impacting volumes; and further slowdown in industrial activity.
Citi has maintained its buy rating as it remained sanguine on the long term outlook for Petronet given use-or-pay contracts that are already in place for more than or equal to 90 percent of its eventual Dahej capacity of 17.5 MMTPA, which provide high visibility to volume/EBITDA/EPS CAGR of 13/23/26 percent over FY16-20.
At 10:26 hours IST, the stock was quoting at Rs 367.60, up Rs 20.25, or 5.83 percent amid high volumes on the BSE.Posted by Sunil Shankar Matkar
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