Petronet LNG sees ratings, target prices unchanged after Q1 earnings

Currently, the stock has 19 buys, 13 holds and 4 sell ratings, according to Bloomberg

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Several brokerages maintained their ratings and target prices for Petronet LNG Ltd after posting impressive figures for the June quarter earnings.

Nomura Research and Motilal Oswal Securities have maintained their 'neutral' stand, while Jefferies India, Antique Stock Broking kept the 'buy' rating unchanged. Nuvama Research stuck to its 'hold' tag on the stock.

All these brokerages have kept their target price for the stock unchanged, except Nomura Research, which sees an 11 percent upside to Rs 260 a share. The stock has 19 buy, 13 hold and four sell ratings, according to Bloomberg.

Petronet LNG on July 31 reported consolidated net profit of Rs 819 crore in the first quarter of financial year 2023-24, an increase of 13 percent from the year-ago period. Revenue from operations stood at Rs 11,656.38 crore, lower by 18 percent in the same period last year.

The overall LNG volume processed by the company in the current quarter was 230 TBTU, as against the LNG volume processed in the previous and corresponding quarters, which stood at 185 TBTU and 208 TBTU, reporting growth of 24 percent and 11 percent respectively.

According to Nomura, Petronet LNG is trading at an attractive valuation, with a price-to-earnings (P/E) ratio of 9.9x for FY25. Additionally, the company offers a compelling dividend yield of 5 percent. It maintains conservative estimates, considering uncertainties in LNG prices in the near term. They project Dahej terminal's utilisation at 85 percent for FY24, but if the spot LNG prices stay stable, Nomura anticipates, Petronet LNG's FY24 operating profit (EBITDA) will potentially exceed its initial estimate by around 5 percent.

The company is moving forward with its petrochemical project, and analysts express concerns that this move might have an adverse effect on the stock. There has been no progress in the recovery of use-or-pay revenues. In FY23, the firm recorded Rs 1,270 crore of use-or-pay revenues, but the realisation of these revenues in the future remains uncertain, as per analysts' expectations. The company mentioned that a few customers have recognised these amounts as payables in their accounts, which raises the possibility that Petronet LNG will be able to collect a portion of these revenues, analysts said.

According to Motilal Oswal Securities, Petronet LNG faces not only sustainability issues concerning its earnings per share (EPS) growth but also a classic case of Dutch Disease. The company's net cash of Rs 5,700 crore has become a concern for investors due to the diminishing growth prospects in LNG terminalling.

As a result, the company is compelled to invest in riskier and more volatile areas, including gas-based petrochemicals, compressed bio-gas, and LNG trucking. This shift in investment strategy may be seen as a worrisome development for investors, given the uncertainty and challenges associated with these newer ventures, it expects.