Hold Petronet LNG; target of Rs 225: ICICI Direct

ICICI Direct's research report on Petronet LNG

Petronet LNG reported its Q3FY19 results that were above our estimates on the profit front. However, disappointment was there on volume front. The topline rose 30.2% YoY to Rs 10097.7 crore mainly due to higher LNG prices. Volumes declined 9.4% YoY and came in below our estimates at 202 tbtu (our estimate: 217.7 tbtu) EBITDA at Rs 848.1 crore was above our estimate of Rs 832.6 crore mainly due to higher blending margins of Rs 49.4/mmbtu (our estimate of Rs 45.4/mmbtu) owing to higher spot & gasification margins as per our internal estimates and lower other expenses due to higher efficiencies On the profitability front, PAT during the quarter increased 6.9% YoY to Rs 565.3 crore above our estimate of Rs 528.8 crore. The upside in PAT was also contributed by higher-than-expected other income of Rs 88.4 crore (our estimate: Rs 72.8 crore).

Outlook

Petronet LNG provides comfort on the business model and remains a structural story of India’s increasing gas demand. With India continuing to be short of natural gas supply, Petronet LNG will benefit as the primary play on increasing usage of LNG in the long term. However, in the near term, on account of lower-than-earlier expected volume growth, we value Petronet LNG at 13.5x FY20E EPS of Rs 16.6 to arrive at a target price of Rs 225 with a HOLD rating.