Sell Petronet LNG; target of Rs 280: Centrum

Centrum's research report on Petronet LNG

We retain Sell rating, with a revised TP of Rs 280. The company reported a robust 124.1% capacity utilisation at Dahej vs 129.6% in Q1FY17 and slightly higher than our estimate of 120.9%. We infer positive trading/marketing margins which was a surprise for the street and hence higher than our and street’s estimated earnings. Additionally, reloading income at Kochi and higher MTM treasury income boosted PAT. Hereon, we expect utilisation at Dahej to taper-off on a higher base of nameplate capacity. 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 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.

Our TP of Rs 280 is based on equal weight assigned to fair value derived on (1) DCFF and (2) PEx assigned to Mar-18 EPS. Key risks to our rating are changes in (1) capacity utilisation and (2) trading/marketing margins.