Neutral Petronet LNG; target of Rs 225: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

Petronet LNG (PLNG) reported higher-than-est. EBITDA of INR12.1b during the quarter, due to lower-than-expected employee and other expenses. Dahej utilization declined to 95% in 2QFY24 (vs. 98% in 1QFY24), while utilization at Kochi was flat at 21%. Spot LNG price is currently at ~USD18/mmBtu, up from ~USD13/mmBtu in 2QFY23. The management expects LNG prices to hover in the range of USD15-18/mmBtu even during winters as Europe has already accumulated more than 98% of gas inventory. The estimated cost of the company’s PDH PP project has increased to INR207b from INR142b previously, thereby raising concerns on capital allocation. The management expects project IRR to be ~12%, while equity IRR is expected to be ~30%. Volumes have improved substantially YoY in 1HFY24 amid cooling LNG prices. However, long-term volume growth prospects remain bleak for the company, due to intensifying competition from upcoming LNG terminals as well as increasing 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.