Petronet LNG - Company Update - BUY - TP Rs.285 - Kotak

- With a ban on the usage of petcoke (petroleum coke)/furnace oil, improving gas demand from power/fertilizer sector and no major ramp-up in domestic gas production in the near-term, LNG demand in India is expected to rise meaningfully, we opine. The key beneficiary of the same is expected to be PLNG.

- In Order to meet the rising domestic gas demand, PLNG is adding RLNG capacity of 2.5 MMTPA in Dahej to 17.5 MMTPA by FY19E. Recently, it has expanded Dahej capacity by 50% to 15 MMTPA 90% of its capacity is contracted, giving decent revenue visibility.

- On the other hand, Kochi terminal is operating at sub-optimal utilization given lack of pipeline infrastructure. Management expects quarterly uptick (marginal) in volumes till the Mangalore Kochi pipeline is commissioned and the same is expected by Dec'18. We believe this will significantly ramp-up RLNG volume. GAIL is working on getting approvals for the pipeline and clarity on the pipeline can potentially add to valuations of PLNG.

- We expect PLNG's earnings to grow at a CAGR of 15% over the next two years driven by volume growth, benefiting from contractual commitments of 17.2 mn tons and commissioning of Kochi-Mangalore pipeline. We expect PLNG to report an EPS of Rs.14.1 for FY18E and an EPS of Rs.15 for FY19E. We expect FY18E to be better driven by acceleration in volume growth, supported by expansion. At CMP, we believe that the stock is reasonably valued at 16.7x FY19E earnings. We recommend BUY on the stock with a price target of Rs.285/- including equity value of 26% stake in Dahej Port. Given that most of the capacity at Dahej is tied-up, there is strong visibility on the free cash flow yield.

Shares of PETRONET LNG LTD. was last trading in BSE at Rs.251.15 as compared to the previous close of Rs. 250.2. The total number of shares traded during the day was 12734425 in over 2577 trades.

The stock hit an intraday high of Rs. 253.9 and intraday low of 249.15. The net turnover during the day was Rs. 3186969860.

Source : Equity Bulls

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