Company Update: Petronet LNG - ACCUMULATE - TP Rs.462 - Kotak

Spot LNG prices continues to trade lower in a range of US$5.1 - 5.5/mmbtu due to large liquefaction plants coming up in Australia and US. Further, the long term LNG prices are expected to be lower due to supply glut. Needless to say, spot LNG prices may see short-term fluctuations due to seasonal demand. Softer LNG prices will continue to attract demand from various sectors and thus helping PLNG to perform, we opine. Any demand pick up from the power sector despite closure of Power System Development Fund (PSDF) scheme may contribute as incremental gas demand. Additionally, there is a strong possibility of ban on furnace oil and petroleum coke in NCR, resulting in incremental demand on LNG.

With GDF International, France (holding 10% stake) selling its stake in PLNG, the ongoing concern of selling pressure is behind us. We expect LNG consumption to rise in India with lower customs duty, increasing government focus on pollution control and fuel economics. Additionally, there is a strong possibility of ban on furnace oil and petroleum coke in NCR, resulting in incremental demand on LNG. We expect FY18E earnings to be better driven by acceleration in volume growth, supported by expansion.

We estimate FY18 EPS of Rs.26.9 and FY19 EPS of Rs.29.7. At CMP, we believe that the stock is reasonably valued at 14.5x FY19E earnings The Board has recommended a dividend of Rs.5/share (as against Rs.2.5/share in FY16) and 1:1 bonus share. We Have factored higher volumes led by higher spot LNG demand. Considering the medium-term positive triggers, we revise our DCF based target price upward to Rs.462 (earlier Rs.457) including equity value of 26% stake in Dahej Port. However, due to limited upside we maintain accumulate rating on the stock.

Shares of PETRONET LNG LTD. was last trading in BSE at Rs.431.8 as compared to the previous close of Rs. 432.65. The total number of shares traded during the day was 82499 in over 3281 trades.

The stock hit an intraday high of Rs. 437.95 and intraday low of 429. The net turnover during the day was Rs. 35805388.

Source : Equity Bulls

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