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Motilal Oswal
Petronet LNG (Buy)
Target: ₹310
CMP: ₹231.45
We interacted with the management of Petronet LNG on aspects such as the current business status and outlook. In addition, we had a detailed discussion on the various prospects for business diversification in the recently published FY21 Annual Report.
The management highlighted that spot prices have risen to abnormal levels of $D24–25/mmbtu (i.e., 2x that of long-term contracts) on account of huge demand from China, Japan, and Europe. This has resulted in lower spot cargo orders being placed over the last few months. The company expects spot LNG prices to normalise over the next 5–6 months. That said, Petronet LNG has tied-up contracts of 16.75 mmtpa (i.e., 95 per cent of the nameplate capacity of 17.5 mmtpa in Dahej), which are cushioning its utilisation rates.
We highlight the discussion on business diversification as follows. PLNG is exploring an opportunity to set up an ethane/propane import facility at the Dahej terminal – on the back of probable demand from OPAL and GAIL (at the PATA plant). The company has also planned a small petrochemical unit, which would be based on imported propane.
Notably, the management has guided for threshold IRR for new projects at >16 per cent. The company’s return profile remains strong, with ROE/ROCE at 25–26 per cent /21–23 per cent over FY21–24.
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