Sell Petronet LNG; target of Rs 270: ICICI Securities

ICICI Securities is bearish on Petronet LNG has recommended sell rating on the stock with a target price of Rs 270 in its research report dated July 24, 2024.

Broker Research

August 01, 2024 / 18:57 IST

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Volume

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ICICI Securitie's research report on Petronet LNG

Dahej’s long-term volume was up 8% YoY (-9% QoQ) to 97tbtu while service volume, at 144btu, was up a sharp 17/33% YoY/QoQ, driven by a sharp moderation in spot LNG prices in Q1, sharply higher gas fired power demand and ~11tbtu additional volume via fulfilment of pending Use or Pay (UOP) obligations. Spot cargoes were at 7tbtu. While Kochi’s volume of 14tbtu remained modest, the imminent completion of the second leg of KochiMangalore-Bengaluru pipeline and softer LNG prices should drive volume higher over the next 12–18 months. However, we believe Q1 is likely to be the peak quarter for FY25, driven by i) normalisation of power demand from Q2, ii) USD 2-3/MMbtu increase seen in spot LNG prices and uncertain UOPrelated uptick for the rest of FY25.

Outlook

Petronet LNG (PLNG) has reported 32% YoY (42% QoQ) improvement in EBITDA to INR 15.6bn and 45/55% YoY/QoQ rise in adjusted PAT to INR 11.4bn. Volume of 248tbtu at Dahej reached an 11-quarter high, driven by softer LNG prices and additional ~11tbtu taken by an off taker in lieu of fulfilment of pending UoP obligations. Additionally, INR 2.6bn of inventory gains (offset by UoP provision related write off of INR 1.9bn) also boosted earnings in Q1. Moderate LNG prices, expansion of Dahej by 5mt by end-FY25 and Kochi-Bengaluru pipeline by end-CY24 are positives. However, lower earnings momentum for the rest of FY25 (refer Page 2), sharply higher capex, falling return ratios and low single digit EPS CAGR over FY25-27E may dampen the prospects. Downgrade to SELL.

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