Petronet LNG rating | Buy — Growth in demand augurs well

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Published: September 2, 2019 4:12:28 AM

Higher utilisations likely to continue owing to steps to boost gas usage and weaker competition; ‘Buy’ retained

Petronet LNG, PLNG, domestic gas consumption, Brent, GERC, National Green Tribunal, Central Pollution Control Board, LNG gasThe National Green Tribunal (NGT) has directed the Central Pollution Control Board (and respective State PCBs) to shut critically polluted industrial clusters within three months.

The current low spot price environment should support the government’s plans to bring about major reforms in the domestic gas consumption space, including the revival of gas-based power plants. This coupled with weaker competition would aid continued higher utilisations for the company. We reiterate Buy on PLNG.

Revival of stranded gas-based power plants to aid imports

Spot LNG prices have weakened (trading at ~6-7% slope to Brent) amid rising supply glut with expansions in the US, Australia and Russia. Also, domestic production is behind schedule. Taking advantage of low LNG prices, the Gujarat Electricity Regulatory Commission (GERC) has approved a 278-MW long-term PPA (for 19 years) for Torrent Power’s (TPW’s) UnoSugen gas plant (total capacity: 383 MW) and its Ahmedabad and Surat distribution circles. Low LNG prices have also resulted in the government looking for possible solutions to revive gas-based power plants.

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Long-term demand to get further boost from Central Pollution Control Board

The National Green Tribunal (NGT) has directed the Central Pollution Control Board (and respective State PCBs) to shut critically polluted industrial clusters within three months. NGT has identified 100 industrial clusters on which the environmental assessment studies were conducted for classification under critically polluted, severely polluted and not-polluted categories. We believe a shift from dirty fuels to usage of natural gas is an important tool to reduce air pollution.

Expansion to help amidst rising demand

PLNG completed expansion of 2.5mmtpa at Dahej on 25th Jun’19 and has ‘take-or-pay’ utilisation contracts for 15.75mmtpa. Dahej is witnessing almost full utilisation of its 17.5mmt capacity, with 15.75-mmtpa tied up for long term, ~0.8-0.9mmt of Kochi’s Gorgon volumes and another 0.5mmt of spot volume consumed by ONGC OPAL plant at Dahej. It managed volumes of ~16.2mmtpa at Dahej in FY19. It plans to set up two more tanks at Dahej (capex: Rs 13 bn) and build a Jetty (capex: `10 bn), increasing throughput to ~19.5mtpa over the next 2-3 years. Competition from Mundra LNG and Ennore LNG terminals and the Jaigarh FSRU remains at bay.

Other operational developments

PLNG has signed MoUs with GUJGA and IGL to set up LNG gas dispensers in their respective GAs. Also, the company is in talks to set up ~10-20 LNG gas dispensers at OMCs’ retail outlets. PLNG is also in preliminary talks for US LNG project, and expects to look for avenues of down-streaming the volumes too.

 

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