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Pick of the Week: Buy Petronet LNG at CMP and add on dips to Rs 391-395 band

HDFC Sec | 16 May, 2017  | Follow Author | Add to my Favourites 
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Company Background

Petronet LNG (PLNG) is a JV between GAIL, ONGC, IOC and BPCL (stake 12.5% each) to set up LNG receiving and regasification terminals in India to facilitate LNG imports. PLNG has established itself as an international player and has relationships with major LNG exporters. PLNG had set up its first LNG terminal in Dahej, Gujarat (current capacity post expansion of 15 MMTPA). It also has a 5 MMT terminal at Kochi. A third terminal at Gangavaram is also under initial stages of execution. PLNG earns fixed re-gas margins on long term volumes and additional marketing margins on short term volumes that are paid by the gas off-takers


View and Valuation

PLNG offers a good mix of double digit volume growth over FY17-FY20 accompanied by escalation in tariffs. Given the visibility of revenue and profit growth, high RoE levels of ~22% in FY19E and possibility of decent growth beyond FY19E, we feel investors could buy the stock at the CMP and add on dips to Rs. 391-395 band (~13.0x FY19E EPS) for sequential targets of Rs 484 (16x FY19E EPS) and Rs 514 (17x FY19E EPS). At the CMP of Rs 435 the stock trades at 14.4x FY19E EPS.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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