Petronet LNG ranking: Purchase; launch of pipeline more likely to assist development
We worth the corporate on a DCF of particular person terminals to reach at goal worth of Rs 290 (earlier Rs 300) and retain our Purchase ranking on PLNG as it’s effectively positioned to profit from any improve in fuel demand within the nation in our view.
We count on near-term development to select up with the Kochi Mangalore pipeline now commissioned which is able to open up new clients. Apparently, the worth of newly found home fuel is linked to the worldwide LNG worth. With international LNG costs falling (and more likely to stay weak), crude costs persevering with to rise and economic system recovering quickly, we count on LNG offtake to extend in India throughout FY22. We estimate it will drive 8% and 17% earnings development for PLNG in FY22 and FY23.
Longer-term development pipeline continues to be a piece in progress Whereas PLNG continues to guage new terminals in Sri Lanka and the East Coast of India, large capability development plan continues to be a ways away. Nevertheless, PLNG has some comparatively simpler development deliberate with a rise in capability at Dahej (by advantage of further terminals and jetty) which ought to place it as soon as once more as one of many lowest-cost re-gasifiers in a area that has the potential for extra fuel demand. We nonetheless assume Kochi utilisation at 30% in FY22 and peak utilisation at 50% as uncertainties on tariffs nonetheless stay however we additionally see upside danger to utilisation as connectivity is lastly out there.
Within the interim, it stays a cash-generating machine At the same time as PLNG has c`50 bn of money (c14% of market cap) as of Sep’20, it continues to generate money with a c10% FCF yield. Consequently, we count on the corporate to pay out a major dividend at a 7.2% dividend yield in FY22 at the same time as capex steadily scales up in FY22. We consider it will present vital draw back help to the inventory worth. Whereas traders fear about potential return on deployment of money, we’re extra assured given its current evaluation of offers and elevated dividend pay-out.
Valuations are undemanding We decrease our earnings estimate by 5-7% in FY22/23e to consider a extra conservative utilisation and tariff for Kochi pending its tariff negotiation. An Rs 10/mmbtu lower within the Kochi tariff can scale back the corporate’s valuation by 3% and a ten% improve within the utilisation price can improve the valuation by 3%. We worth the corporate on a DCF of particular person terminals to reach at goal worth of Rs 290 (earlier Rs 300) and retain our Purchase ranking on PLNG as it’s effectively positioned to profit from any improve in fuel demand within the nation in our view.
PLNG is buying and selling at FY22e PE of ~11x, a 20% low cost to its 10-year historic common. Catalyst: Elevated utilisation of Kochi terminal ought to drive up each earnings and the PE a number of. Key dangers are sharp improve in home fuel manufacturing, sharp minimize in Kochi tariffs and ROE-dilutive capex.
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