31 August, 2014 13:45 IST
`Buy` Petronet LNG; target Rs 203: Finquest Securities
Source: IRIS Exclusive (07-MAR-12)
Comments  |  Post Comment

Finquest Securities has recommended `Buy` on Petronet LNG with a price target of Rs 203 as against the current market price (CMP) of Rs 162 in its report dated Mar. 06, 2012. The broking house gave the following rationale:

In India`s energy security, liquefied natural gas (LNG) remains indispensable. The demand for gas continues to be robust while gas production is likely to remain flat in the medium term, the importance of LNG is only going to increase. Petronet LNG (Q,N,C,F)* (PLNG) is well poised to cater to the opportunities provided by the widening demand-supply gap of natural gas. We initiaten coverage on the stock with a buy rating.

India`s natural gas demand is likely to grow at a CAGR of 11%-20% while the domestic natural gas supplies are likely to remain flat to declining in the medium term, LNG will hold the key to plug the widening demand-supply deficit. To cater to the increasing demand, PLNG is increasing its regassification capacity from the current 10 mmtpa to more than 25 mmtpa by FY16-17, as the company is increasing its capacity at the Dahej plant coupled with commissioning of the Kochi plant and a 5 mmtpa green-field regassification plant in Gangavaram in Andhra Pradesh.

PLNG has signed 7.5 mmtpa long term Supply Purchase Agreement (SPA) with Rasgas, Qatar on take or pay basis and subsequent back to back Gas Sales Purchase Agreement (GSPA) with the GAIL, BPCL and IOC. As per GSPA, the responsibility of volume intake lays with the off takers. Thus, PLNG is effectively shielded from volume risk on the long term contract. Over and above the long term Rasgas contract, the regassification cargoes of GAIL and GSPC coupled with strong demand for spot cargoes ensures strong volume visibility.

PLNG has contractual agreement wherein it escalates the regassification margin 5% annually. The company has effectively increased the regassification tariff for the last seven years. Also, the decline in domestic gas production and company`s low cost terminal wards off any pressure on the regassification margins. Also, PLNG charges marketing margin on spot cargoes it purchases mfor customers. For 9M FY12, PLNG has earned marketing margin of ~ Rs. 20-23 per mmbtu on spot cargoes.


At CMP, PLNG is trading at a PE multiple of 10.9x FY13E and 7.7x EV/EBIDTA FY13E.We value PLNG on DCF basis with a 12- month target price of Rs. 203, implying a potential return of 25.3% from the current levels. We believe, long term LNG tie up, higher than expected marketing margins and Kochi terminal`s regassification charges will lead to further upgrades in the stock.

Click here to view full report

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.

Live News
Growth shows early signs of recovery; economy to grow at 5.7-5.9%: Govt - 31-Aug-2014 00:19
India's Forex reserves fall USD 811 mn - 29-Aug-2014 18:01
Genesco Q2 profit plummets, misses estimate - 29-Aug-2014 17:57
Indian economy grows 5.7% in Q1, highest since Q4 FY12 - 29-Aug-2014 17:49
High-market concentration major issue in Sun Pharma-Ranbaxy deal: CCI chairman - 29-Aug-2014 17:05
Jan Dhan scheme to eliminate corruption at delivery level: Assocham - 29-Aug-2014 16:58
Credit to industry grows 10.1% in Jul'14; service sector credit up 12.3% - 29-Aug-2014 16:43
Surana Industries appoints Deloitte Haskins & Sells as statutory auditor - 29-Aug-2014 16:26
Kharif sowing crosses 96.62 mn hectare mark - 29-Aug-2014 16:10
Non-food bank credit grows 12.6% in Jul'14; agri-credit up 19.5% - 29-Aug-2014 15:54
India's external debt rises 7.6% to USD 440.6 bn on NRI deposits - 29-Aug-2014 15:20
* Q - Quote , N - News , C - Chart , F - Financials
Comments Post comment 
 Post Comment
Name Email
Security Code type   m3mwwj into this box
Home  |   Shares  |   F&O  |   Mutual Funds  |   Loans  |   Insurance  |   News Centre
Wealth Tracker  |   Newsletters  |   Tax Corner  |   NRI Centre  |   Forums  |   E-mail  |   Advertise
© All rights reserved. IRIS Business Services Limited
A Disclaimer