Petronet LNG a compelling growth story despite near term concerns: Nomura

While the market is concerned over the poor demand for the highly-priced RasGas long-term LNG…

While the market is concerned over the poor demand for the highly-priced RasGas long-term LNG (R-Gas), we think the current weakness in PLNG’s share price is an opportunity to accumulate for two reasons: 1) a sharp earnings growth (we expect 37%/54% growth in FY17/18F) driven by capacity expansion (fully contracted) cannot be ignored; and 2) the R-Gas contract could be renegotiated, ending the current crisis and leading to early volume recovery.
With 10 cargos in Q1FY15, the 10% annual downward flexibility is already nearly exhausted. The continued deferral of R-Gas volumes will be a trigger for early negotiations, and an early agreement will be a key trigger for the stock, in our view. While the stock performance may remain muted in the near-term on current market concerns, Petronet LNG remains a compelling growth story.

We believe in the new low oil/gas price era, the R-Gas pricing formula is not sustainable. The R-Gas price would remain much higher than alternate LNG imports for the next 2-3 years.

We assume R-Gas volume deferral of 20% each in FY16F/17F, and assume lower Dahej utilisation at 90-92% (versus past 4-year average of 102%). Our near term earnings reduce sharply (36% for FY16f and 24% of FY17f), but the outlook on long-term earnings growth remains unchanged. While we expect flat earnings in FY16F, we expect earnings to nearly double/treble in 3/5 years. Our price target is unchanged and we reiterate buy rating.

For Updates Check Stock Market News; follow us on Facebook and Twitter

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 08-05-2015 at 00:18 IST