Motilal Oswal's neutral Petronet LNG objective is Rs 225

 Motilal Oswal's neutral Petronet LNG objective is Rs 225

In its research report dated October 31, 2023, Motilal Oswal suggested a Neutral rating on Petronet LNG with a target price of Rs 225.

The Petronet LNG study report by Motilal Oswal

Due to lower-than-expected personnel and other expenditures, Petronet LNG (PLNG) announced higher-than-estimated EBITDA of INR12.1b for the quarter. While utilization at Kochi remained constant at 21%, it decreased to 95% at Dahej in the second quarter of FY24 from 98% in the first. Currently, the spot LNG price is at USD18/mmBtu, up from around USD13/mmBtu in 2QFY23. Since Europe has already absorbed more than 98% of the gas inventory, the management anticipates that LNG prices will remain in the USD15–18/mmBtu range even over the winter. The company's PDH PP project is expected to cost INR207 billion, up from INR142 billion originally, which raises questions about capital allocation. The management anticipates an equity IRR of around 30% and a project IRR of about 12%. In 1HFY24, volumes have significantly increased YoY despite declining LNG prices. However, because of growing domestic gas supplies and fiercer competition from planned LNG facilities, the company's long-term volume growth prospects are still dismal.

Prospects

As previously mentioned in our research, PLNG continues to be concerned about the sustainability of high return ratios, as seen by the projected reduced ROCE of 7–18% for the Dahej extension, Gopalpur FSRU, and PDH-PP plant. As a result, we maintain our Neutral rating with a 225 INR target price.