Target price of Rs 310 on the stock of Petronet LNG
According to Motilal Oswal, the Dahej expansion to 20mmtpa would be completed over the next three years, with further expansion to 22.5mmtpa expected within another year. The company has already placed an order for two tanks at Dahej (total ongoing capex of Rs 28-30 billion).
According to Motilal Oswal, the management highlighted that spot prices have risen to abnormal levels of USD24-25/mmbtu (i.e., 2x that of long-term contracts) on account of huge demand from China, Japan, and Europe.
“This has resulted in lower spot cargo orders being placed over the last few months. The company expects spot LNG prices to normalize over the next 5-6 months. That said, PLNG has tied-up contracts of 16.75mmtpa (i.e., 95% of the nameplate capacity of 17.5mmtpa in Dahej), which are cushioning its utilization rates,” the brokerage has said.
Diversification to help
Petronet LNG is exploring an opportunity to set up an ethane/propane import facility at the Dahej terminal – on the back of probable demand from OPAL and GAIL (at the PATA plant). According to Motilal Oswal, the company has also planned a small petrochemical unit, which would be based on imported propane. The management highlighted that the feasibility study for the aforementioned
two projects is to be carried out, along with the probable internal rate of returns of the projects. “The stock trades at 9.2x FY23E EPS of Rs 23.3 and 5.3x Fy23E EV/EBITDA. We value Petronet LNG on DCF to arrive at fair value of Rs 310. Maintain Buy on the stock of Petronet LNG” the brokerage has said,” Motilal Oswal has said.
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