Kotak Securities
Petronet LNG (Buy)
CMP: ₹230.8
Target: ₹276
We believe Petronet’s earnings will continue to rise over the next 2-3 years, driven by higher volumes from Dahej LNG regasification terminal and a higher operating rate of the currently stranded Kochi terminal. Construction of the pipeline to evacuate gas from Kochi is progressing well. Petronet is eyeing to invest in the overseas LNG market which will help it in geographical diversification and further expansion.
We expect the company’s earnings to grow at a CAGR of 14 per cent over the next 3 years driven by 1) completion of Kochi-Mangalore pipeline; 2) Dahej expansion; and (3) tariff escalation according to contract. To begin with, it is also launching around 20 LNG fuel stations to boost LNG consumption in India.
We maintain ‘buy’ on the stock with a revised price target of ₹276 (earlier ₹285) including equity value of 26 per cent stake in Dahej Port. Given that most of the capacity at Dahej is tied-up, there is strong visibility on the free cash flow.