Buy Petronet LNG; target of Rs 253: Axis Direct

Axis Direct's research report on Petronet LNG

PLNG expects Kochi terminal’s utilization at 15% in FY18 (6% in FY17), as gas off-take from FACT and Kochi refinery (together ~2.5 mmscmd) continues. The utilization may reach ~40% after completion of Kochi- Mangalore pipeline by Dec ’18. Dahej terminal’s utilization will remain 100%+ over FY18-20, as ~17 mntpa capacity is already pre-booked on take-or-pay terms. PLNG is actively engaged in bidding for a new LNG terminal in Bangladesh (total project cost at ~USD 1 bn).

Outlook

Earnings growth to continue: We expect PLNG’s EPS to rise 75% over FY17-20 (even on higher FY17 base) on capacity expansion at Dahej terminal and higher utilization at Kochi terminal. ~65% growth has negligible risk given already contracted volumes and mandatory 5% hike in re-gas tariffs. Valuation at 13x FY19E EPS is attractive given strong EPS growth and RoE/RoCE of 23-25% by FY19. Maintain BUY.