Shares of Petronet LNG gained nearly 2 percent intraday on July 2 after JM Financial upgraded its rating on the stock to buy with a target of Rs 320, implying 24 percent potential upside from current levels.
"High earnings visibility amidst current uncertainty and healthy return on equity (RoE) of 24-26 percent are strong positives in this uncertainty and valuation (12.9x FY22E P/E) does not factor in volume growth potential," the brokerage reasoned.
State-owned Petronet LNG's Q4FY20 operational performance was largely in-line with brokerage's estimates, though earnings were affected by forex impact on lease liability and inventory loss on a fall in spot LNG prices.
Petronet reported a 18.4 percent year-on-year decline in Q4FY20 profit at Rs 359 crore on revenue of Rs 8,567.2 crore which increased 2.2 percent. Operating performance remained strong with earnings before interest, tax, depreciation and amortisation (EBITDA) rising 11.2 percent YoY to Rs 697.5 crore and margin expanding 60 bps to 8.1 percent in quarter ended March 2020.
JM Financial expects volume CAGR at 4.4 percent over FY20-22 on a rise in utilisation for Dahej and Kochi terminals.
Management said the Tellurian deal it is still under consideration. However, "we take comfort from its prudent capital allocation track record and management's guidance that its equity investment will be contingent upon reaching its threshold IRR and that it will continue with its strategy of not taking any volume and price risks," said the brokerage.
With limited capex plans, the board approved a final dividend of Rs 7 per share, taking the total FY20 dividend to Rs 12.5 (Rs 10 in FY19).
The stock surged 49 percent from its March lows. It was trading at Rs 261.70, up 1.71 percent on the BSE at 14:09 hours IST.
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