Motilal Oswal

Petronet LNG (Buy)

CMP: ₹256.3

Target: ₹336

Petronet LNG (PLNG) arranged a conference call to allay investor concerns about the recently signed MoU with Tellurian, US. PLNG signed a non-binding agreement with Tellurian in the US on September 21, which envisages an LNG purchase contract of up to 5 mmt.

Higher gas adoption from industries and the power sector will likely support volume growth for PLNG. We believe that, due to the Kochi-Mangalore pipeline and Dahej expansion, PLNG’s total volume could grow by about 9/7 per cent in FY20/21. We expect EBITDA growth of about 27 per cent/16 per cent in FY20/21.

Cash utilisation for the company has been a challenge, though we expect the dividend payout to remain strong. We factor in the recent corporate tax benefit announced by the government in our model, which lead to EPS change of about 12 per cent for FY20/21. We value the stock using DCF (WACC: 11.2 per cent, terminal growth: 3 per cent). We reiterate PLNG as our top pick in the sector with an upside of about 33 per cent to the current market price.

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