Shares of Petronet LNG are lower by more than 5% in early trading on January 2, weighed down by critical comments by natural gas regulator PNGRB regarding tariffs, and a note by Citi that has put the stock under a 90-day negative watch.
Natural gas regulator PNGRB has said that the company seems to have made profit at the cost of gas consumers, and is seeking a framework to bring the regasification activities under its purview. The regulator said Petronet LNG has been 'profiting immensely' by escalating tariff for regasification at its Dahej terminal every year, and not passing on the benefits of capacity expansion and better utilisation.
"Rising charges while capacities have increased along with over 90% capacity utilisation has led to the company (Petronet LNG) being able to profit immensely at the cost of gas consumers," PNGRB said in a recent paper. "As new terminals are established nationwide, they follow the same tariff basis as Dahej, which needs reconsideration," PNGRB added.
The regulator is of the view that the need to bring regasification activities under its purview will ensure fair pricing and efficient utilisation of LNG's import infrastructure.
The process of regasification is used to convert liquefied natural gas (LNG) back into natural gas.
Read More: Petronet LNG Q2 Net Profit rises 4% on year to Rs 849 crore
The comments are being seen as an element of uncertainty, or risk to the pricing power of the company that it has historically enjoyed. Citi has maintained a Sell on the stock with a target price of Rs 310 per share, with a view that the latest PNGRB observation is a meaningful regulatory risk for the company.
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PNGRB in the paper noted that despite expanding capacity at Dahej terminal, Petronet LNG's re-gasification charges too have escalated every year, now at an enhanced level for the entire capacity. Petronet LNG has two regasification terminals, the bigger one at Dahej, Gujarat and other at Kochi, Kerala.
Shares of Petronet LNG were higher by 45% in 2024, and have a market capitalisation of over Rs 49,000 crore. The company trades at 13 times its estimated earnings per share for the coming year, and 14 times the trailing EPS. The stock is priced at 2.9 times book value, as per Bloomberg data.
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