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Muted volume outlook…

About the stock: Petronet LNG, a JV between leading PSU oil companies, is involved in LNG import and regasification.

* The company operates two LNG terminals at Dahej and Kochi

* Total nameplate capacity of the company is 22.5 MMTPA

Q2FY22 Results: Petronet LNG’s Q2FY22 results were better than estimates.

* Revenue was up 73.4% YoY to | 10813.1 crore (our estimate: | 9999.2 crore). Total volume was 240 tbtu, above estimate of 228.7 mmbtu

* Blended margin was | 64.7/mmbtu, higher than estimate of | 55.7 mmbtu. EBITDA was | 1296.9 crore, down 4.9% YoY (our estimate: | 1033.2 crore)

* PAT was at | 823 crore, down 11.2% YoY (our estimate: | 633 crore)

What should investors do? With increase in domestic production, emergence of new terminals and lack of new big growth opportunities in the medium term, we expect limited upside in the stock price, going ahead.

* We retain our HOLD rating on the stock

Target Price and Valuation: We value Petronet LNG at | 245 i.e. 11.5x P/E on FY23E EPS

Key triggers for future price performance:

* Petronet LNG is India’s leading play in import of LNG in the country and will be a beneficiary of the government’s aim to increase the share of natural gas in the energy basket to 15% over the long term

* The 17.5 mmtpa Dahej terminal has been booked for 15.75 mmtpa under long term, thus providing visibility to long term volumes. Increase in Kochi terminal utilisation can support volume pick-up

Alternate Stock Idea: Besides Petronet, in our oil & gas coverage we also like Gail.

* Gail is India’s leading gas transmission company, which is a beneficiary of increasing gas consumption. Stable volume growth along with higher profitability from gas trading, petchem and LPG segment due to higher oil prices will add value

* BUY with target price of | 180

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