Buy Petronet LNG; target of Rs 265: Sharekhan

Sharekhan's research report on Petronet LNG

Q1 operating profit grew strongly by 25% y-o-y to Rs. 1,182 crore (in-line) led by robust Dahej re-gas volume growth of 27% q-o-q, partially offset by lower trading margin/inventory gains. Adjusted PAT of Rs. 790 crore (up 23% q-o-q) was 5% above estimate on higher other income and lower interest cost. Dahej terminal’s utilisation improved 97% in Q1FY24 (versus 77% in Q4FY23) with re-gas volume of 217 tbtu (up 11%/27% y-o-y/q-o-q) while Kochi terminal’s utilization was flat q-o-q at 20%. Fall in spot LNG price bodes well for sustained strong volume recovery in the coming quarters. Dahej capacity expansion to 22.5 mtpa remains on track. We expect a healthy PAT CAGR of 14% over FY23-25E along with strong RoE of 22%.

Outlook

We maintain our Buy rating on P-LNG with an unchanged PT of Rs. 265. The valuation of 9.8x/8.4x its FY2024E/FY2025E EPS is attractive considering earnings growth visibility and stock offers healthy dividend yield of 4-5%.