Motilal Oswal's research report on Petronet LNG
Petronet LNG (PLNG) reported a beat on our EBITDA estimate despite lower volumes, due to ‘Use or Pay charges’ of INR8.5b during the quarter. Dahej utilization declined to 70%, adversely impacted by lower off-take amidst high LNG prices, while utilization at Kochi stood at 21%. Spot LNG prices have dropped to ~USD15-20/mmBtu over the past couple of days, driving up utilization levels to ~81%. The management expects utilization levels to improve going forward, if spot LNG prices sustain at their current levels. Regasification charges at Dahej have been increased at the usual 5% annual rate to INR59.9/mmBtu from Jan’23 while charges at Kochi will be revised by 5% to INR85/mmBtu from April’23. Lack of clarity on capital allocation and possible returns from the new investments such as biogas projects and PDH-PP continue to remain key concerns that might keep the stock under pressure. In addition to INR8.5b ‘Use or Pay charges’ recognized in 3QFY23, the company is yet to recover ‘Use or Pay charges’ of INR4.2b recognized during FY22. Factoring in the above, we revise our EBITDA estimates by 23%/5%/5% for FY23/24/25, respectively, reflecting improvement in EBITDA margins, on account of hikes in regasification charges. We reiterate our Buy rating on the stock.
Outlook
The stock currently trades at 5.2x FY24E EV/EBITDA. We value PLNG on a DCF basis to arrive at a fair value of INR285 and reiterate our Buy rating on the stock.