Buy Petronet LNG; target of Rs 410: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

We recently upgraded PLNG to BUY (Tide is turning, slowly) on inexpensive valuations and strong upcoming capacity growth. In this short note, we reiterate our BUY rating on PLNG and highlight: 1) PLNG’s market share in India’s LNG imports, which slipped to 69% of total imports in FY25 (FY15: 78%), could start to rise as new Dahej capacity starts operations; 2) Assuming a modest 4.5% CAGR in India’s natural gas (NG) consumption over FY25-30 and a 2% CAGR in domestic NG production, India’s LNG imports need to grow at a robust 6% CAGR (~32mmscmd increase in LNG imports over FY25-30), and this should benefit PLNG’s new expanded capacity; 3) Our current assumptions imply that PLNG secures only ~41% share of incremental import growth (69% of total imports in FY25); 4) Global liquefaction capacity is set to rise by 10%/11% YoY in CY26/27 (historical LNG demand growth: 5%-6%), likely ushering in an era of lower-for-longer LNG prices; 5) While brownfield expansion from existing terminals is a risk, we believe this is unlikely to play out given the lackluster utilization at existing facilities.

Outlook

As per our DCF analysis (WACC: 10.5%), at CMP, PLNG is pricing in an unrealistic scenario of a 20% decline in tariffs at the Dahej and Kochi terminals in FY28, with no tariff hike thereafter and 0% terminal growth. At 8.9x FY27E P/E and a ~4.3% dividend yield, we believe valuations are at the rock bottom. Reiterate BUY with a DCF-based TP of INR410.