Accumulate Petronet LNG - CMP: Rs.147, TP: Rs.180 - Prabhudas Lilladher

Concerns over potential regulation overblown: Currently, there is no regulation for LNG terminals in India. Our analysis of various regulations across geographies also highlights the fact that some of the concerns over the potential third-party access of new LNG terminals or expanded capacity is exaggerated. International countries have increasingly been more liberal towards regulation of the LNG terminals. Recent terminal eligibility norms issued by PNGRB mandating open access to the tune of ~20% of short-term volumes or 0.5 mtpa whichever is higher, are not a cause for concern. The notification also mentions protection of consumer interest by the regulator; however, we feel that regulations of LNG terminals will be pragmatic, at a time when the country requires more terminals to be built. We continue to treat LNG import facilities as quasi upstream facilities needing higher returns to incentive increased imports.

Dwindling domestic production unlikely to lower LNG intake capacity: Likely take-or-pay agreement for all the incremental Dahej expansion would reflect Dahej terminal's first-mover advantage in a scenario of tighter domestic gas supplies. The company has already tied up 2.25 mtpa of capacity from the Dahej expansion for GSPC, signing a 20 year contract with the firm. This, coupled with opening of newer demand centre on account of newer pipelines, likely reforms in key user industries (led by fertilizer) and likely upward revision of the domestic gas prices would put to rest concerns over utilization of the upcoming incremental capacity at Dahej.

Outlook: PLNG's utility nature of business (stable regasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe that the concerns over the regulatory intervention on the marketing margin front as well as PNGRB regulating regasification charges are exaggerated. We recommend 'BUY' on the stock with target of Rs180/share.

Source : Equity Bulls

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