Buy Petronet LNG; target of Rs 310: ICICI Direct
ICICI Direct’s research report on Petronet LNG
Petronet LNG reported its Q2FY18 results, which were above our estimates on all fronts mainly on account of higher than estimated volumes. The topline increased 17.5% YoY to | 7770.2 crore above our estimates of | 6568.8 crore. Total sales volumes were at 220 tbtu, above our estimates of 204.2 tbtu. Higher-than-expected contracted volumes at 134 tbtu (our estimate: 110 tbtu) mainly led to higher volumes. However, short/spot volume and regasification volumes came in slightly below our estimates Blended margins came in at | 46.7/mmbtu higher than our estimates of | 44.3/mmbtu. As a result, EBITDA of | 898.7 crore, came in above our estimate of | 763.5 crore Subsequently, PAT, which also saw a contribution from higher than estimated other income, increased 28.1% YoY to | 588.8 crore, above our estimates of | 447.8 crore.
Petronet LNG’s back-to-back LNG purchase-sales agreement provides comfort on the business model. It remains a structural story of India’s increasing gas demand. With India continuing to be significantly short of natural gas supply, Petronet LNG will benefit as the primary play on increasing usage of LNG. In the long term, we expect volumes to show stable growth and contribute to higher profitability. We value Petronet LNG at 20x FY19E EPS of | 20 to arrive at a price target of | 310 with a BUY recommendation.
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