Stock To Buy: This Formidable Gas Player's Stock Can Jump 53%, Here's Why

Broking firm, Prabhudas Lilladher has recommended buying the stock of Petronet LNG for gains of upto 53%. the brokerage has set a price target of Rs 325 on the stock, as against the current market price of Rs 212.

Petronet LNG: Results were more or less in line with estimates

Prabhudas Lilladher says that it tweaks its FY23/24E estimates by 0.5%, as it incorporates H1 BS. "PLNG reported in-line results with EBIDTA and PAT of Rs11.7bn (+10%Q/Q; PLe Rs11.0bn) and Rs7.4 bn (+6%Q/Q, PLe Rs7.3bn), as higher margins compensated for lower than expected volumes. Recent softening of spot LNG prices to USD24/mmbtu from Q1 level of USD46/mmbtu augurs well, as spot volumes for H1FY23 were muted at 3tbtu vs 15tbtu in H1FY22. Additionally, the company's long term contract is best suited in uncertain global economy," the brokerage has said.

2 reasons to be buying the stock of Petronet LNG

Prahudas Lilladher's Research Analyst, Avishek Datta in his report has cited two reasons for buying the stock. First is high earnings visibility and the second is limited competition.

"We believe Petronet LNG is a formidable play on India's rising LNG imports, despite rising domestic gas production backed by 1) high earnings visibility and 2) limited competition to its well-entrenched reach in LNG business. Reiterate 'BUY' with a DCF based price target of Rs 325 (Rs 307), as we update our H1FY23 BS," the Prabhudas Lilladher report has said.

Blended tariffs increase

Petronet LNG's Q2 blended tariffs adjusted for use or pay charges were at Rs70.0/tbtu against Rs61.5 in Q1FY23 (PLe Rs67), Prabhudas Lilladher analyst has said. "Higher margins were due to high spot volumes of 2tbtu in Q2vs 1tbtu in Q1 and company has booked Rs2.7bn vs Rs1.1bn in Q1. The global gas market remains in a state of flux, as high EU demand to offset lower Russian gas supplies have increased spot LNG prices to $46/mmbtu in Q1FY23. However, gas prices have corrected to $24/mmtbu due to 1) high gas inventory at 95% in EU 2) lower demand in China due to covid restrictions and warm weather and 4) reports of negotiated settlement in Ukraine-Russia war," the report states.

Limited threat from rising domestic gas supplies

Petronet LNG remains well placed to grow, despite rising domestic gas supplies from RIL/ONGC. "We believe new supplies are likely to impact new LNG terminals like Mundra and H-Energy, which don't have any long term contracts. Additionally, high growth opportunities from CGD and power sector ramp-up will spur gas demand in the country, which will necessitate more infrastructure coming on stream," Prabudas Lilladher report adds.