Buy Petronet LNG; target of Rs 297: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

Petronet LNG (PLNG) reported a beat on our EBITDA despite lower volumes due to trading gains of INR2.7b during the quarter. Dahej utilization stood at 82% while utilization at Kochi was at 16%, hurt by lower off-take amidst high LNG price. Spot LNG price has come down to ~USD25/mmBtu and is expected to soften further in 4QFY23, which should lead to improvement in utilization rates during 2HFY23. Utilizations are likely to remain muted in the near term, although take-or-pay revenue may originate during 3QFY23. The Board hasrecently approved a budget of INR23b for the 4mmtpa FSRU project in Gopalpur. The project aims to establish PLNG’s presence in the eastern coast of India by addressing the increasing gas demand in the region. Lack of clarity on capital allocation and possible returns from the new investments such as biogas projects and PDH-PP continue to remain key concerns that might keep the stock under pressure. Factoring in the above, we revised our Revenue/EBITDA estimates in FY24 by -12%/-20%, respectively, reflecting low volume off-take expectations in FY24 led by increased competition. Reiterate BUY due to healthy long-term volume trajectory of the company.

Outlook

The stock trades at 5.4x FY24E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR297; maintain BUY.