Buy Petronet LNG; target of Rs 340: Motilal Oswal

Motilal Oswal 's research report on Petronet LNG

Volumes at Dahej were down QoQ (and below est.), as three cargoes were cancelled/deferred due to the COVID-19 led lockdown in Mar’20. In Apr-May’20, the company claimed force majeure on eight cargoes from Qatar and one from ExxonMobil under the contractual clause of pandemic. The revocation is expected to settle in favor of PLNG. Dahej terminal is currently operating at ~100% utilization, up from 50-55% in Apr-May’20. Various power plants are switching off the coal in the current lower spot price environment, resulting in higher gas offtake and imports. Negotiations are on with Qatar Gas over LNG pricing. PLNG also said that MOU with Tellurian may get extended with a final decision expected in FY21. Recently, PNGRB allowed any entity to set up LNG station across geographical area (GA) or anywhere in India to promote LNG as an alternative fuel for trucks. Small Scale LNG (ssLNG) has potential of 8-9mmtpa of LNG for trucks in next 8-10 years. Also, the NGT’s actions against severely/critically polluted industrial clusters would lead to higher adoption of gas from industries. PLNG expects utilization to be healthy at ~100% going into the year, further aided by power sector demand. Maintain Buy.

Outlook

The stock trades at 12.0x FY22E EPS of INR21.5 and 6.6x FY21E EV/EBITDA, with expected EBITDA CAGR of ~13% over FY20-22E. We value PLNG on DCF to arrive at a fair value of INR340 (upside of 32%). Reiterate Buy.

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