Buy Petronet LNG Ltd for the Target Rs. 390 by Motilal Oswal Financial Services Ltd
Stable 2Q performance; volume recovery crucial
* PLNG’s 2QFY26 revenue/EBITDA came in line with our estimate at INR110b/11.2b. The company booked additional provisions of INR1.3b against UoP dues during the quarter. UoP trade receivables of INR289m were waived off during 2Q. EBITDA adjusted for UoP provisioning and waiver stood 10% above our estimate. Reported PAT was in line at INR8.1b, aided by higher-than-expected other income.
* Total volumes came in line with our estimate at 228tbtu. Dahej utilization was in line with our estimates, while Kochi utilization stood 12% above est. We note that spot LNG prices dipped QoQ in 2Q, averaging USD11.8/mmbtu (USD12.4 in 1Q).
* The 5mmtpa capacity expansion at the Dahej terminal is now expected to be operational by the end of Mar’26, reflecting a delay of about three months. Considering this delay and the recent softness in service volumes, we revise our FY26 volume assumption for the Dahej terminal to 16.9mmtpa (from 17.1mmtpa earlier), leading to a 9% reduction in our FY26 PAT estimate.
* According to our DCF analysis (WACC: 10.5%), at CMP, PLNG is pricing in an unrealistic scenario of a 20% decline in tariffs at the Dahej and Kochi terminals in FY28, with no tariff hike thereafter and 0% terminal growth. At 8.9x FY27E P/E and a ~4.3% dividend yield, we believe valuations are inexpensive. We reiterate our BUY rating with a DCF-based TP of INR390.
Key highlights from the management commentary
* Kochi terminal reported record-high utilization during the quarter, driven by BPCL’s Kochi refinery starting cargo imports.
* Update on Dahej petchem expansion: As of 10 Nov’25, more than INR6b of capex has been incurred on this project.
* Gopalpur terminal: Land has been acquired, and the revised Environmental Clearance (EC) has been resubmitted. The company is expecting the clearance soon (no timeline shared).
* Regas revenue contribution stood at INR7.5b. In 2Q, inventory gain stood at INR410m. Trading gains were nil during the quarter.
UoP provisioning and waiver weigh on 2Q performance
* PLNG’s 2QFY26 revenue was in line with our estimate at INR110b.
* EBITDA fell 7% YoY to INR11.2b (4% below our estimate).
* The company booked additional provisions of INR1.3b against UoP dues during the quarter. UoP trade receivables of INR289m were waived off during 2Q. EBITDA adjusted for UoP provisioning and waiver stood 10% above the estimate.
* Reported PAT was in line with our estimate at INR8.1b, down 5% YoY, supported by higher-than-expected other income.
* PAT adjusted for UoP provisioning, and the waiver stood 23% above the estimate.
* Spot LNG prices fell QoQ in 2Q, averaging USD11.8/mmbtu (USD12.4 in 1Q).
* Operational performance:
* Total volumes came in line with our estimate at 228tbtu. No spot volumes were recorded during the quarter.
* Dahej utilization was in line with our estimates, while Kochi utilization stood 12% above our estimates.
* As of Sep'25, provisions on UoP dues stood at INR7.4b.
* UoP dues of INR13.9b (net of provision: INR6.6b) were included in trade receivables as of Sep'25. PLNG has obtained bank guarantees from some customers to recover UoP charges. While some customers have not given balance confirmations toward these dues, management is confident of recovering such charges.
* The Board declared an interim dividend of INR7/sh (FV: INR10/sh).
Valuation and view
* As per our DCF analysis (WACC: 10.5%), at CMP, PLNG is pricing in an unrealistic scenario of a 20% decline in tariffs at the Dahej and Kochi terminals in FY28, with no tariff hike thereafter and 0% terminal growth. At 8.9x FY27E P/E and a ~4.3% dividend yield, we believe valuations are inexpensive.
* Our DCF-based TP of INR390 (WACC: 10.5%, TG = 2%) assumes a 10% tariff cut in FY28, followed by a 4% rise for both the terminals. While we have incorporated the full capex for the petchem plant, we value it conservatively at 0.5x FY29E P/B and discount this back to FY27.
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