Buy Petronet LNG; target of Rs 270: Sharekhan

Sharekhan's research report on Petronet LNG

The sharp decline in LNG prices makes LNG economics favourable compared to alternate fuels (especially FO). This bodes well for higher LNG demand in India and, in turn, would benefit Petronet LNG (PLNG). We expect PLNG to generate cumulative FCF of Rs. 4,234 crore over FY2019E-FY2020E. With limited capex in the near term, PLNG could surprise with an increase in its dividend payout in FY2019E and FY2020E. Dahej expansion and Kochi ramp-up remain key catalysts for volume growth for FY2020-FY2021E and we model a 9% volume CAGR over FY2019E-FY2021E.

Outlook

We maintain our Buy rating on PLNG with an unchanged PT of Rs. 270, given earnings visibility and healthy RoE. Key risks are delay in Dahej capacity expansion and lower-than-expected Kochi utilisation rate.