Hold Petronet LNG; target of Rs 235: ICICI Direct

ICICI Direct's research report on Petronet LNG

Petronet LNG reported its Q1FY20 results that were marginally below our estimates on profitability front. Topline declined 6.1% YoY to Rs 8613.4 crore, below our estimate of Rs 9110.3 crore mainly due to lower volume of long term contracted LNG sales. Total volumes increased 2.6% YoY and 10.2% QoQ to 226 tbtu and came in largely in line with our estimate of 222.5 tbtu. EBITDA and blended margins of Petronet LNG are not comparable to the previous quarter as the company adopted Ind-AS 116. Hence, adjusted EBIT of the company on a like-to-like basis is only comparable. EBIT at Rs 834 crore came in marginally below our estimate of adjusted EBIT of Rs 842.4 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. However, due to anticipated competition on account of upcoming new terminals, we value Petronet LNG at 13x FY21E EPS of Rs 18 to arrive at a price target of Rs 235 with a HOLD rating.