Buy Petronet LNG: target of Rs 285: Sharekhan

Sharekhan's research report on Petronet LNG

Q1FY22 adjusted PAT of Rs. 675 crore (flat q-o-q) was 18% above our estimate led by better-than-expected re-gas volume of 209 tbtu (down 4.1% q-o-q and 4.5% above our estimate) and lower-than-anticipated depreciation. Dahej/Kochi re-gas volume of 194tbtu/15tbtu with utilisation of 87%/23.5% (better than our estimate). Dahej utilization has improved to 95% in July. Management has guided for recovery of Q1FY22 volume loss in coming quarters. Volume offtake visibility is strong as a 16.5-mtpa capacity is contracted for Dahej terminal. The management has changed its stance from an aggressive capex to gradual spends on LNG retailing/CBG plants. Focus remains on Dahej capacity expansion by 5 mtpa (in two phases), storage tanks and jetty with capex of Rs. 4,100 crore.

Outlook

Valuation is attractive at 9x its FY2023E EPS, given earnings visibility, high RoE, and FCF/dividend yield of 9%/7%. Hence, we maintain a Buy rating on Petronet LNG with an unchanged PT of Rs. 285.

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