Neutral Petronet LNG; target of Rs 295: Motilal Oswal

Motilal Oswal's research report on Petronet LNG

Petronet LNG (PLNG) recorded lower-than-est. adj. EBITDA (ex of use or pay charges) of INR11b (our est. of INR12.5b) during the quarter. There was a sharp rise in ‘other expenses’ as the company allocated funds (amounting to INR2.3b) for certain provisions related to UoP in 3Q. Dahej utilization increased to 99% (vs. 70% in 3QFY23), while utilization at Kochi stood at 22% (up 160bp YoY). Management highlighted that it has successfully reached settlements with customers regarding UoP and has secured bank guarantees from them. Management also emphasized that if the target volumes for CY21 and CY22 are achieved by Dec’24 and Dec’25, respectively, PLNG would waive the UoP. However, if the targets are not met, the company would encash those bank guarantees received from the customers.

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 INR295