Buy Petronet LNG; target of Rs 214: SPA Research

SPA Research is bullish on Petronet LNG and has recommended buy rating on the stock with a target of Rs 214 in its May 21, 2012 research report.

“Petronet LNG, largest and sole domestic player in the Indian LNG space, is engaged in the unique business of importing, storing and re-gasifying LNG and derives its revenues by charging regasification margins on the imported LNG. To target the increasing domestic gas deficit, the company is enhancing its capacity from 10 mmtpa to 25 mmtpa by FY17E.”

“Demand for gas in India is forecast to rise from 243 mmscmd in FY12 to 488 mmscmd in FY16E. The gas deficit is expected to widen from 48 mmscmd to 170 mmscmd in FY16E (after considering LNG consumption). With KG-D6 gas production slowdown and no other alternative source, imported LNG will be the key source for incremental supply of natural gas in India. Gas availability through the LNG route is going to be a major area of growth in the coming years. To grasp the opportunity of gas demand supply mismatch, PLNG is increasing its current RLNG capacity by 2.5x from 10 mmtpa to 25 mmtpa by FY17E. This includes brownfield expansion of Dahej capacity from 10.5 m mtpa to 15 mmtpa (12.5 mmtpa by FY14E and eventually 15 mmtpa by FY15E), setting up of a Greenfield LNG terminal of 5 mmtpa capacity each in Kochi (starts in FY13E)and in the east coast of India at Gangavaram (expected to start in FY17E).”

“We expect PLNG's FY13E earnings to remain subdued as Kochi terminal's interest and depreciation would start coming in and corresponding revenue contribution would only start from FY14 onwards. We believe the next cycle of earnings growth would come post FY13E led by (1) volume ramp-up at Kochi, (2) second jetty commissioning at Dahej, (3) progress on Dahej expansion and (4) setting up of Gangavaram LNG terminal. PLNG's revenues and net profit are expected to register a CAGR of 20% and 7% respectively over FY12-14E. We recommend BUY on PLNG with a target price of INR 214 per share based on FCFF valuation approach. At CMP the stock is trading at P/E of 7.8x FY14E EPS and EV/EBIDTA of 4.7x its FY14E EBIDTA,” says SPA Research report. 

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