Petronet LNG - DCF based target price of Rs. 180 - Dolat Capital

RLNG - Bridging the supply gap: Import of LNG would continue to bridge the natural gas demand supply gap partially. LNG supply gaining weight age in absence of any increase in domestic supplies. The share of LNG has improved significantly in the natural gas basket from 1% in FY04 to 20% in FY12. LNG has been a better solution for India as compared to transnational pipelines due to geographical concerns and having a shorter gestation period.

- Ongoing Capacity addition: Continuous capacity addition to drive the revenue growth. PLL is expected to increase its capacity by 100% in the next 3 years.PLL is expanding the capacity of Dahej terminal by 50% taking the name plate capacity to 15 MMTPA. Kochi terminal will be commissioned in FY14.

- Resilience in business model: Given the business model, PLL does not carry the risk of rupee depreciation and neither the gas price as both the re-gasification margin and the off-take of re-gasified gas is fixed for the confirmed off-take volumes.

- Spot volumes - better margins: The operational efficiencies (expected to be 10% over name plate capacity) would enable PLL to take advantage of the market demand by bringing in spot cargoes, and earn better margins as well.

Valuation: At CMP, the stock trades at 10.4x FY14E and 8x FY15E earnings. Though the short term growth remains a concern, the long term story remains intact considering the increase in the usage of gas as a fuel. We have a positive view on the stock with a DCF based price target of Rs. 180.

Source : Equity Bulls

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