Petronet LNG share price falls 2% after profits dive 20%, brokerages still upbeat; check target price

Volumes at Dahej were down from the previous quarter owing to the hit taken during the coronavirus pandemic.

Having reported a profit of Rs 373.2 crore in the January-March quarter, down from Rs 465.3 crore in the same period last year, the share price of Petronet LNG dropped 2% during the early hours of trade on Wednesday. Despite a fall in profits, Petronet LNG’s total revenues were up to Rs 8,653 crore from Rs 8,534 crore from a year-ago period. With inexpensive valuations, good dividend yield, and healthy earnings growth brokerage firms are upbeat on the stock, expecting Petronet LNG shares to surge as high as 32%. The stock was trading at Rs 257 per share on Wednesday.

Petronet LNG’s adjusted EBITDA was just below estimates of analysts at Kotak Institutional equities. Volumes at Dahej were down from the previous quarter owing to the hit taken during the coronavirus pandemic. Petronet LNG claimed force majeure on eight cargoes from Qatar and one from ExxonMobil under the contractual clause of pandemic. This move, according to brokerage firm Motilal Oswal, is expected to settle in favor of the company. In the financial year 2020, the company saw a jump in profits to Rs 2,703 crore, up 28% from the previous year on account of one-time settlement payment of lease rent.

What is playing in favour of Petronet LNG is the current low spot price environment, that bodes well for the government’s plan to bring about major reforms in the gas sector, including the revival of gas-based power plants, said Motilal Oswal. “The stock trades at 12.0x FY22E EPS of Rs 21.5 and 6.6x FY21E EV/EBITDA, with expected EBITDA CAGR of ~13% over FY20-22E. We value PLNG on DCF to arrive at a fair value of Rs 340,” it said while putting a buy call on the scrip.

Management commentary around tariff has allayed concerns of investors and analysts. “The proposed tariffs at Kochi will yield a threshold IRR on Rs 3,300 crore of carrying value of terminal assuming ramp-up in volumes to 30-35% over the next few years; any further reduction is unlikely as it may lead to impairment,” Kotak Institutional Equities said in a report. The brokerage firm has a fair value Rs 300 on the stock on account of healthy earnings, reasonable valuations, and an attractive dividend yield of 6%-8%.

Brokerage firm Emkay Global is, however, not convinced and has an HOLD rating on the stock with a target price of Rs 290. Higher competition and lower volumes are a cause of concern along with the Tellurian deal, which is termed as a continuing overhang on the stock, according to Emkay Global. EPS for this fiscal and the next is trimmed by 16% and 11%, respectively.