Our channel checks suggest more than full utilisation at Dahej and marginally increased throughput at the Kochi LNG terminal. We continue to believe that increased domestic gas production and upcoming competition would not be a significant risk to utilisation. Reiterate ‘buy’ with a target price of Rs 275. On capacity of 15 mmtpa, PLNG has firm take-or-pay utilisation contracts of 15.75mmtpa. Our channel checks further suggest that LNG arrival at Dahej is happening at a rate of 16mmtpa, reflecting above full utilisation. Among the existing terminals, Dabhol would remain underutilised due to the lack of breakwater facility, the tender for which has not yet been awarded. GSPC/Adani’s 5 mmtpa Mundra LNG terminal is expected to come in early 2018, with the completion of 60km Mundra-Anjar pipeline being key to this. Additionally, capacity of the existing 170 km 3 mmtpa Anjar-Chotila network needs to be augmented to handle the full load. Tender for this has not yet been awarded.
IOCL’s Ennore LNG terminal would come up in 2019, and service an entirely new set of consumers without being any threat to PLNG. PLNG is likely to continue gradual capacity addition at Dahej terminal to benefit from the evolving LNG opportunity in India. We expect its total capacity to reach 22.5 mmtpa by FY20. Firm offtake contracts at Dahej terminal and ramp-up of Kochi terminal would enable PLNG to post volume CAGR of 10% over FY17-20. We do not assume any escalation in Kochi re-gas charge 2018 onward.
The stock is trading at 12.7x FY19E EPS of `18 and 8.2x FY19E EV/EBITDA. We value the stock using DCF. With a target price of `275, we reiterate our ‘buy’ rating on the stock. We believe that the existing Dabhol and Hazira terminals would remain underutilised, while the upcoming Mundra and Ennore terminals would face pipeline issues. We believe that LNG prices would remain structurally weak for a long time, even if oil prices were to rise, due to decoupling of oil-gas price link since 2009 due to abundance in supply of shale gas and142 mmtpa of LNG liquefaction capacity under various stages of construction vs global LNG trade of 245 mmt in 2015.