Here's why Motilal Oswal reiterate its buy call on Petronet LNG

A worker walks at Nahr Bin Umar oil field, north of Basra, Iraq December 21, 2015. Iraq has signed deals worth $1.4 billion to ship about 160,000 barrels per day of crude to two Indian refiners in 2016, sources said, upping the ante in a race among exporters to cement their market share in Asia - the world's top oil consuming region.

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Motilal Oswal has reiterated its buy rating on Petronet LNG, the country's largest liquefied natural gas importer, with a target price of Rs 460 (implying 19 percent upside), citing strong demand due to lower LNG prices and higher imports. The stock gained nearly 2 percent on Thursday.

Latest February 2017 data from the Petroleum Planning & Analysis Cell (PPAC) suggest that LNG imports increased 19.3 percent YoY in February 2017. The surge can be primarily attributed to expanded capacity at Dahej and strong demand due to low LNG prices, the brokerage house says.

The research firm remains positive on the prospects of Petronet LNG, saying expansion at Dahej plant will drive volume growth going ahead.

Within just one month of its expansion, Dahej recorded utilisation of 98 percent (as of Q3FY17). Against nameplate capacity of 15mmtpa (million metric tonnes per annum), it has contracts of 15.25mmt for FY18 and 15.75mmt for FY19. Additionally, till the time Kochi is ready, Gorgon volumes are landing at Dahej, fetching Kochi regas margins, it says.

In FY18, Motilal Oswal feels Dahej plant is expected to report total volumes of 16.5-17mmt.

It says as Kochi starts ramping up, volumes from Gorgon project (in Australia) would shift from Dahej to Kochi, it believes. As Gorgon volumes shift to Kochi, the possible shift in source from high-priced Gorgon volumes to cheaper spot or medium-term cargoes (and lower regas at Dahej) would be even more economical for erstwhile Gorgon volume consumers at Dahej.

Hence, the brokerage house believes that around 110 percent utilisation at Dahej is very likely in FY19 as well.

As soon as BPCL's Kochi refinery starts commissioning of its expansion, Kochi LNG terminal's utilisation would ramp up to around 20 percent. Additionally, work on the Kochi-Mangalore pipeline has also commenced in two of the four sections. Completion of this pipeline would raise utilisation to 40-50 percent, it believes.

Spot LNG prices for April delivery are hovering below USD 6 per mmBtu.

According to Motilal Oswal, prices are likely to remain low, which would help improve the market for LNG in the country.

The brokerage house expects FY19 PAT of the state-owned liquefied natural gas importer to grow more than 3x that of FY16.

At 14:42 hours IST, the stock was quoting at Rs 395.90, up Rs 7.30, or 1.88 percent on the BSE.

Posted by Sunil Shankar Matkar