Hold Petronet LNG; target of Rs 208: Prabhudas Lilladher

Prabhudas Lilladher's research report on Petronet LNG

The recent announcement of PLNG is not the first time that the management has announced projects that have the potential of sharply eroding its return ratios. The company had a net cash of Rs30b in FY19. Since then, there have been several announcements that have challenged the fundamental nature of its business. The recent board approval (net cash of Rs78bn) is likely to not only strain its balance sheet but also result in incremental ROCE of 3% at current spreads. We have already witnessed the poor performance of two gas based petrochem plants- GAIL & OPaL since past few years. RIL’s petrochem performance is different as it has option to process multiple feedstock. We estimate EPS CAGR of 3.3% during FY24-26E.

Outlook

The stock is trading at 10.6x FY25 EPS and 5.1x FY25 EV/EBITDA. We value the stock at 10x FY26 EPS and reiterate our ‘Hold’ stand with a TP of Rs 208 on the company.