Nomura Financial Advisory & Securities has recommended `Buy` on Petronet LNG with a price target of Rs 230 as against the current market price (CMP) of Rs 161 in its report dated Jan. 31, 2012. The broking house gave the following rationale:
PLNG continues to surprise on volumes and earnings. 3Q volumes hit an all-time high, and earnings were 15% ahead of Bloomberg consensus. With domestic gas volumes declining, spot LNG prices moderating, demand remaining strong, and most important, PLNG adding most of the near-term incremental capacity, PLNG`s outlook seems only brighter to us. We again raise our FY12F/13F/14F EPS estimates by 14-15%. Even as we are already 10-12% ahead of the Street for FY13/14F, we think PLNG may still surprise. Our new target price is Rs 230 on our revised estimates.
Catalysts: Early tie-up of new capacity; import duty cut:
We have been expecting that PLNG would be a key source of new gas in the near to medium term. With KG-D6 output continuing to decline, demand for LNG has become even stronger. After a long time, India is now signing long-term LNG contracts again GAIL`s 3.5mmtpa contract in December 2011 is likely just the beginning, as advanced discussions are ongoing for several more. With its capacity expansion being most advanced among upcoming projects, PLNG`s new capacity is likely to be contracted soon, in our view. The site for the East Coast terminal is also finalised for future growth. The Oil Ministry`s demand for removal of the 5% import duty, if accepted in the budget, would also be a positive.
Valuation: Strong performance in 2011, may repeat in 2012F:
PLNG was our preferred pick for 2011. Despite its outperformance (up 25%; Sensex down 25%), we see significant upside. After sharp earnings growth (53% in FY11; likely 73% in FY12F), however, we see momentum slowing in the near term until its new capacity comes online. PLNG is in the most advanced stages for capacity increases and in our view should remain the key gateway for incremental LNG imports in the medium term.
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