Neutral Petronet LNG; target of Rs 225: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

Petronet LNG (PLNG) reported in-line EBITDA of INR11.4b in 1QFY24. Dahej utilization improved notably to 98%, while utilization at Kochi stood at 21%. The improvement in utilization levels was led by spot LNG price that dipped 29% QoQ to ~USD11/mmBtu. Management expects LNG prices to sustain at current levels over the next few months, which would aid near-term utilization to remain at present levels. The company may also consider construction of land-based terminal at the East coast, if FSRU market remains tight. Construction of land-based terminal may raise upfront capex to ~INR50b vs. ~INR23b for FSRU. However, operating cost of FSRU is higher than land-based terminal; hence, the total costs even out for both projects over a five-year period. Despite increase in volumes, PLNG’s long-term volume growth prospects remain bleak due to intensifying competition from the upcoming LNG terminals as well as rising domestic gas supply.

Outlook

As highlighted in our previous report, sustainability of high return ratios also remains a key concern for PLNG as the ROCE for upcoming projects (Dahej expansion, Gopalpur FSRU and PDH-PP plant) is likely to be lower at 7-18%. Hence, we reiterate our Neutral rating with a TP of INR225.