INSUBCONTINENT EXCLUSIVE:
Motilal Oswal Securities has a buy call on Petronet LNG with a target price of Rs 317.
The current market price of Petronet LNG is Rs
225.80.
Time period given by the brokerage is one year when Petronet LNG price can reach the defined target
Investment rationale by the brokerage
Increasing LNG glut to support prices: According to International Gas Union (IGU), about 92mmtpa of
Consumption in Japan, the largest importer of LNG, is likely to decline
China and India are expected to be the major drivers of consumption
Higher incremental supply is likely to result in increasing glut, keeping LNG prices favorable.
Slope to remain favorable: With a glut in
natural gas production, the slope of Henry Hub to WTI has crashed from 13 per cent to 6.5 per cent
We expect a similar trend in spot LNG prices with expansion in global glut
Lower slope to oil would be beneficial for LNG consumers and, in turn, for PLNG.
Competition to remain moderate: Despite the inauguration of
Domestic gas production has also been lagging projections
We value the stock using DCF (WACC of 12 per cent, terminal growth of 3 per cent)
With a target price of Rs 317, we reiterate our Buy rating on the stock
Key triggers to watch out: (i) progress on the completion of Kochi-Mangalore pipeline, (ii) ramp-up of domestic gas production and (iii)
progress of Dahej expansion from 15mmtpa to 17.5mmtpa
Deployment of cash remains a challenge in the absence of commensurate imminent projects
However, management has shown prudence in terms of shortlisting of prospective projects
Dividend payout is also likely to remain high in the absence of imminent cash outgo on projects.
