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* Petronet LNG (PLNG) reported in-line EBITDA of INR9.4b during the quarter. Dahej utilization improved to 77%, while utilization at Kochi stood at 21%.

* Spot LNG price has dropped to ~USD11/mmBtu thereby driving up utilization levels at Dahej terminal to ~97% in Apr’23. Management expects utilization levels to remain healthy going forward if LNG price sustains at current level.

* Management also highlighted that utilization at Kochi terminal may reach 35% in FY25E from 21% currently, if GAIL’s Kochi-Bangalore pipeline is completed by Nov’24.

* Despite near-term improvement in volumes, long-term volume growth prospects remain bleak for the company, due to intensifying competition from upcoming LNG terminals as well as increasing domestic gas supply.

* As highlighted in our previous report, sustainability of high return ratios also remains a key concern for PLNG as the ROCE for upcoming projects (Dahej expansion, Gopalpur FSRU and PDH-PP plant) is likely to be lower comparatively at 7-18%. Hence, we reiterate our Neutral rating with a TP of INR225.

EBITDA in line; beat on PAT

* Total volumes were in line with our estimate of 184Tbtu (down 3% YoY, up 10% QoQ) during 4QFY23.

* Dahej utilization stood at 77% (154Tbtu). ? Kochi utilization stood at 21% (13Tbtu).

* EBITDA was in line with our estimate at INR9.4b (est. INR9b, down 19% YoY, up 44% QoQ).

* PAT was above our estimate at INR6.1b (est. INR5b, -18% YoY, -48% QoQ) due to higher-than-estimated other income during the quarter.

* For FY23, EBITDA stood at INR49b (down 8% YoY), with PAT at INR32b (down 3% YoY).

* Dahej utilization stood at 79% (down 10% YoY), while Kochi utilization stood at 19% (down 2% YoY).

Valuation and view

* PLNG not only suffers from sustainability of its EPS growth but also from a classic Dutch Disease. The net cash of INR57b has become an eye sore for investors as growth opportunities in LNG terminalling have become bleaker and the company is forced to invest in more volatile areas such as gas-based petrochemicals, compressed bio-gas as well as LNG trucking.

* The company currently trades at 12.5x FY24E EPS of INR18.9. We value the stock at 12x FY25E EPS of 18.8 to arrive at our TP of INR225. We reiterate our Neutral rating

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