Buy Petronet LNG; target of Rs 335 : Motilal Oswal
Motilal Oswal is bullish on Petronet LNG recommended buy rating on the stock with a target price of Rs 335 in its research report dated November 19, 2020.
December 05, 2020 / 12:54 PM IST
Motilal Oswa's research report on Petronet LNG
In this report, we look back at the performance of PLNG’s Dahej terminal in light of various expansions since the commissioning of the terminal in 2004. PLNG is a JV of four PSU companies (GAIL, BPCL, IOCL, ONGC) constituting 50% of the total equity shareholding, with the remaining stake held by the public. These promoters are also its downstream marketers, with over 90% of gas offtake through them. PLNG has two trading take or pay contracts – 7.5mmt of RasGas (till 2028) and 1.44mmt of Gorgon (till 2035), with 8.25mmt of tolling use or pay contract (on which the company only earns regasification margins). PLNG has been able to quickly ramp-up utilization rates post every expansion (as highlighted in Exhibit 1) owing to these long-term commitments by promoters (refer Exhibit 2). These transactions have been in place since the commissioning of the Dahej terminal and are conducted at arm’s length. Dahej is further expanding to 19.5mmtpa (over next 2-3 years) from 17.5mmtpa at present. We believe the company would be able to achieve optimal utilization rates even at higher capacity owing to its location and infrastructural leverage, along with downstream contracts/marketing abilities of its promoters. As guided by one of its promoters – GAIL, commissioning of three fertilizer plants along the Jagdishpur-Haldia-Bokaro-Dhamra pipeline (JHBDPL) and connectivity to refiners on Urja-Ganga pipeline would aid GAIL in de-risking US HH contracts by bringing ~10mmscmd of volumes currently sold abroad to India. Being of the opinion that promoter-led offtake would continue to aid strong utilization rates at Dahej, we reiterate a Buy.
Return profile for the company remains strong with a RoE/RoCE at 24-27%/21-25% for FY21-23E. The stock trades at 12.1x FY22E EPS of INR21.3 and 6.9x FY22E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR335. Reiterate Buy.
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