Company Update: Petronet LNG Ltd - BUY - TP Rs.276 - Kotak

We believe Petronet's earnings will continue to rise over the next 2-3 years, driven by higher volumes from Dahej LNG regasification terminal and a higher operating rate of the currently stranded Kochi terminal. Construction of the pipeline to evacuate gas from Kochi is progressing well. PLNG is eyeing to invest in the overseas LNG market which will help him in geographical diversification and further expansion.

The company's management has highlighted that Dahej LNG terminal expansion from 15 MMTPA to 17.5MMTPA is expected to completed by June'19 and it will buy 3-4 LNG cargoes in FY19. This will help in meeting the rising domestic gas demand. Recently, it has expanded Dahej capacity by 50% to 15 MMTPA and the same is contracted for more than 90% of its capacity giving decent revenue visibility.

We expect its earnings to grow at a CAGR of 14% over the next 3 years driven by (1) completion of Kochi- Mangalore pipeline, (2) Dahej expansion, and (3) tariff escalation as per contract. To begin with, it is also launching around 20 LNG fuel stations to boost LNG consumption in India.

We expect PLNG to report an EPS of Rs.14.0 for FY18E, an EPS of Rs.14.8 for FY19E and an EPS of Rs.16.5 for FY20E. At CMP, we believe that the stock is attractively valued at 14.2x FY20E earnings. We maintain BUY on the stock with a revised price target of Rs.276/- (earlier 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.

Shares of PETRONET LNG LTD. was last trading in BSE at Rs.230.5 as compared to the previous close of Rs. 235.25. The total number of shares traded during the day was 92420 in over 1653 trades.

The stock hit an intraday high of Rs. 235.15 and intraday low of 228.75. The net turnover during the day was Rs. 21405626.

Source : Equity Bulls

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