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Third-party cargoes cushion the Qatar shock

* Petronet LNG (PLNG)’s reported EBITDA came in at INR15.3b, 18% above our estimate (+32% YoY). Beat was driven by higher-than-estimated inventory gains/trading gains of INR1.9b/INR3.1b. Adjusted for additional UoP-related provisioning/ waiver of INR420m/INR588m during the quarter, EBITDA would have been 25% above our estimate. Reported PAT stood at INR11.3b, 28% above our estimate (+33.2% YoY); adjusted for UoP provisioning, waivers, and recovery impact, PAT would have been 40% above. Total volumes came in 7% below our estimate at 207tbtu.

* Things we liked about the result:

1) Dahej utilization stood at a healthy 68%, holding up despite the Qatar force majeure as strong service volumes offset softness in long-term volumes. Management expects this trend to persist into 2Q, supporting capacity utilization

2) Tied-up volumes are also starting to flow through: Deepak Fertilizers brought in two cargoes in 2QFY27 (contract commenced May'26), while Exxon has begun bringing in cargoes at Kochi; 3) The petrochemical complex remains on track with no delays, having achieved 40% completion (capex of INR4.7b in 1QFY27).

* Key monitorables:

1) ~7.5mmtpa of Qatari volumes are expected to remain unavailable as long as the conflict continues, raising concerns over a sharp decline in utilization

2) the company booked additional provisions/waivers of INR420m/INR588m against UoP dues during the quarter. UoP write-offs and waivers continue to weigh on PLNG's performance

3) mechanical completion of the Kochi terminal's pipeline connectivity is expected by the end of 2QFY27, with the pace of post-connectivity volume ramp-up being a key monitorable

4) the new contract with Qatar Energy could be formalized over the next 2-3 quarters, with the terms of the new agreement remaining a key focus area.

* Valuation :Our DCF-based TP of INR362 (WACC: 11.5%, TG = 2%) assumes a 5% tariff cut at the Dahej terminal in FY28, followed by a 4% rise for both the terminals. While we have incorporated the full capex for the petchem plant, we value the stock conservatively at 0.5x FY29E P/B and discount this back to FY27.

Valuation and view

* At 11.6x FY27E P/E and a ~3.4% dividend yield, we believe valuations are inexpensive. Our DCF-based TP of INR362 (WACC: 11.5%, TG = 2%) assumes a 5% tariff cut at the Dahej terminal in FY28, followed by a 4% rise for both the terminals. While we have incorporated the full capex for the petchem plant, we value the stock conservatively at 0.5x FY29E P/B and discount this back to FY27.

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