Icici securities has given a hold call on Petronet LNG with a TP of `210. The current market price of Petronet LNG is `209. We met the management of PLNG to get a sense of the state of the business and its latest outlook. Here are key takeaways:
Near-term volumes remain stressed, specifically with respect to third-party regasification volumes which were based on spot LNG contracts. Of the 17.5mt capacity, 8.25+4mt or 12.25mt is based on long-term contracts, which remains unaffected by the extreme price volatility seen in spot LNG prices in the last six months. For the shortfall that is evident in CY22, PLNG has indicated that it does have a recourse to impose Take or Pay (TOP) penalties but it would actively look at deferment options given the reality of the macro environment.
This coincides well with the completion of 5mtpa of additional capacity at Dahej and the completion of the Kochi – Bangalore leg of Kochi offtake pipelines. We see Russian gas supply remaining a key monitorable over the course of the ongoing conflict, but as long as disruptions to their supply remain at current levels, additional LNG supplies will ease pricing pressures in the medium term.
PLNG is investing `3,500 crore on a third jetty at Dahej, two storage tanks, 5mtpa brownfield expansion at Dahej, and additional `2,300 crore investment in 4mtpa FSRU LNG terminal at Gopalpur on the East coast. Additional plans to add a 750kta petrochemical plant for an investment of `12,000 crore are also material and with ~0.25mt of demand already tied up with an anchor customer. Also, the company is in the volume renegotiation with RasGas and is aiming to secure at least 1-2mtpa of additional volumes as part of the renewal to fill additional capacity in place by then.
While near-term earnings constraints remain, we believe earnings have bottomed out and over the medium term, the combination of stronger volumes and some moderation in LNG prices, along with higher capacity will ensure earnings growth. We upgrade the stock to HOLD, with a revised target price of `210/sh.