Petronet LNG Ltd is a large-cap gas and petroleum firm with a market capitalization of Rs 30,750 crore. Petronet is a joint venture between IOC, GAIL, ONGC, and BPCL, and its Board of Directors has recommended a final dividend of Rs 4.50 per share for the financial year 21-22, bringing the total dividend to Rs 11.5 per share, implying a 5.6 per cent dividend yield in FY-22 at the current market price of Rs 205.70. Following the company's Q4 results, Sharekhan issued a buy call on the stock with a target price of Rs. 240.
Petronet LNG (PLNG) Q4FY2022 results
Sharekhan has said in its latest report that "Petronet LNG's (PLNG) Q4FY2022 standalone adjusted operating profit of Rs. 1,383 crore, up 26.8%/ flat y-o-y/q-o-q was above ours and the street estimate reflecting higher trading margin of Rs. 396 crore (versus Rs. 314 crore in Q3FY22) and inventory gain of Rs. 50 crore, which offsets weak re-gas volume of 190 tbtu (down 12.8% y-o-y; down 8.7% q-o-q). We have adjusted reported operating profit pf Rs. 1,169 crore for negative impact of Rs. 214 crore related to revision in Kochi re-gas tariff. Although earnings beat our estimate, but operational performance was weak with decline in Dahej re-gas volumes by 12.7%/9.2% y-o-y/q-o-q to 178 tbtu (utilization of 79.8% missed our estimate of 88.8%) and 14.3% y-o-y decline in Kochi re-gas volume to 12 tbtu (utilization of only 18.8%) due to low gas demand amid high spot LNG price. Long term re-gas volume of 97 tbtu (down 17% q-o-q) is as per annual deliver plan and there is no slowdown in the demand for long term LNG. PAT (adjusted for Kochi tariff revision + Rs. 67 crore negative impact of the IND-AS) of Rs. 964 crore, up 26.8%/8.1% y-o-y/q-o-q and beat our/street estimate of Rs. 811 crore/Rs. 713 crore led by higher-than-expected operating profit and lower tax rate of 23.8% (versus assumption of 25%)."
Buy for a target price of Rs. 240
The brokerage has claimed that "Although P-LNG earnings model is resilient to volatility in LNG price given contracted LNG volume for Dahej terminal but earnings outlook seems to muted (expect 4% PAT CAGR over FY22-24E) given continued low utilization rate at Kochi re-gas terminal and Dahej expansion to yield growth post FY24. Additionally, there is a lack of clarity on capital allocation with annual FCF generation in excess of Rs. 3500 crore and capex outlay of Rs. 3400 crore over the next three years. Thus, we cut our PE multiple to 10x FY24E EPS and lower our PT to Rs. 240 while maintaining Buy on the stock given an attractive valuation of 9.6x/8.8x FY23E/FY24E EPS and decent yield of 5-6%. Ramp-up of utilization rate at Kochi could improve volume/earnings growth outlook."
Lower-than-expected re-gas volumes at Dahej terminal in case of any weakness in LNG demand amid COVID-19, spike in LNG price, and any further delay in the ramp-up of utilisation rate at Kochi terminal due to pipeline connectivity issues, are the key risks for the stock as per the brokerage.
The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.