Sell Petronet LNG; target of Rs 256: Centrum Broking

We retain Sell rating, with a revised TP of Rs 256. The company reported a robust 129.6% capacity utilisation at Dahej vs 116.5% in Q4FY16 and slightly higher than our estimate of 127.5%. We infer positive trading/marketing margins which was a surprise for the street and hence higher than our and street’s estimated earnings. However, momentary disruption in domestic gas output and non-availability of Dabhol terminal led to high utilisation, which is not sustainable on a full-year basis. We see the renegotiated RasGas contract as a neutral event and are not as upbeat as the street, as sales mix will change, and this does not alter the demand landscape, which is static. Historically, Petronet has traded at higher valuations when RoE was +28%; however, low RoE over the forecast period, lack of pricing power, trading at Mean+SD+3.8 on PE(x) on one-year forward basis, risk of hair-cut in regas tariffs and risk of non-recovery of take-pay charges make us underweight.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.