Alpha | Petronet LNG Ltd.


Petronet LNG Ltd. – First LNG terminal in India

Integrated in 1998 as a three way partnership amongst GAIL, IOCL, BPCL & ONGC, Petronet LNG Ltd. (PLL) is at the moment one of many quickest rising world-class corporations within the Indian vitality sector. The corporate was shaped to develop, design, assemble, personal and function Liquefied Pure Fuel (LNG) import and regasification terminals in India. PLL commenced its operations by establishing nation’s first LNG receiving and regasification terminal at Dahej, Gujarat and one other terminal later at Kochi, Kerala. As of 31 March 2023, the corporate with a mixed capability of 17.5 million metric tonnes each year (MMTPA) of LNG account for round 33% gasoline provides within the nation and deal with round 75% LNG imports in India.

Merchandise and Providers

PLL is an vitality firm that operates within the LNG sector of the pure gasoline trade. PLL’s most important enterprise actions consists of Import of Liquefied Pure Fuel (LNG) and sale of Regasified – LNG (RLNG) & Regasification/ Dealing with of LNG and ancillary companies.

Subsidiaries: As of FY23, the corporate has 3 subsidiaries and a couple of joint ventures.

Key Rationale

  • Renewal of Qatar deal – The corporate just lately renewed its long-standing cope with Qatar for extra 20 years from 2028 until 2048. The offers ensures regular provide of seven.5 MMTPA LNG from Qatar to India, bolstering the international locations vitality safety. The 20-year deal is an extension of an present contract for LNG provides signed in 1999 which runs till 2028. The deal is taken into account to be of nationwide significance guaranteeing a gradual provide of regasified LNG to key sectors comparable to fertilisers, metropolis gasoline distribution, refineries, petrochemicals, energy and different industries.
  • Enlargement plans: To reinforce the current LNG storage capability of round 1 million CuM at Dahej terminal, development of two further LNG storage tanks of gross capability of 1,85,000 CuM every has been taken up at a price of approx. Rs.1,250 crore with a development schedule of 36 months (September, 2024). The corporate can be endeavor a extremely cost-effective brownfield enlargement of regassification capability of Dahej Terminal from 17.5 MMTPA to 22.5 MMTPA at an estimated price of Rs. 600 crore.
  • New enterprise initiative – Diversifying its enterprise traces, the corporate is endeavor a brand new petrochemical PDH/PP (propane dehydrogenation and polypropylene) plant together with an ethane dealing with facility in Dahej terminal at an outlay of Rs.20,658 crore, anticipated to be commissioned in FY27-28. 250 KTA from the proposed 750 KTA capability of the PDH plant has already been tied up with a buyer for 15 years, extendable for an additional 5 years. Remaining 500 KTA propylene will probably be transformed to PP. The administration expects to ship an IRR of 20% and fairness IRR of 30%.
  • Q3FY24 – Through the quarters, the corporate income declined by 7% to Rs.14,747 crore as in comparison with the Rs.15,776 crore of Q3FY23. Earnings improved marginally with working revenue rising by 2% to Rs.1,705 crore and web revenue rising by 1% to Rs.1,191 crore. Nonetheless, in comparison with the earlier quarter (Q2FY24), income elevated by 18%, working revenue improved by 40% and web revenue surged by 46%. The quarter additionally reported highest ever PBT and PAT recorded within the 9-month interval.
  • Monetary efficiency – The corporate has generated income and PAT CAGR of 19% and 6% over the interval of three years (FY20-23). Common 3-year ROE & ROCE is round 25% and 28% for FY20-23 interval. The corporate has strong capital construction with a debt-to-equity ratio of 0.20.

Business

The oil and gasoline sector is among the many eight core industries in India and performs a significant function in influencing the decision-making for all the opposite necessary sections of the economic system. Being the third largest client of vitality and oil on the planet India’s financial progress is carefully associated to its vitality demand, subsequently, the necessity for oil and gasoline is projected to extend, thereby making the sector fairly conducive for funding. Pure Fuel consumption is forecast to extend at a CAGR of 12.2% to 550 MCMPD by 2030 from 174 MCMPD in 2021. Notably, India can be the 4th largest importer of liquefied pure gasoline (LNG).

Development Drivers

  • Authorities of India has allowed 100% international direct funding (FDI) in lots of segments of the sector, together with pure gasoline, petroleum merchandise and refineries, amongst others.
  • India has set a goal to lift the share of pure gasoline within the vitality combine to fifteen% by 2030 from about 6.7% now.
  • A complete of 88% of the nation’s geographical space masking 98% of the inhabitants has been licensed for the event of Metropolis Fuel Distribution community.

Opponents: GAIL (India) Ltd, Gujarat Fuel Ltd and so on.

Peer Evaluation

Compared to the above opponents, PLL is essentially the most undervalued inventory with wholesome returns on the capital employed and steady progress in gross sales.

Outlook

The corporate is effectively positioned to achieve from the federal government’s push for vitality effectivity from pure gasoline. Presently Dahej terminal is utilised at 96% capability and the plans to increase capability to 22.5 MMTPA by March 2025 is predicted to present additional turnover for the corporate. The corporate additionally has different worth added companies in pipeline comparable to pipeline connectivity from Coimbatore to Krishnagiri pending completion by year-end, terminal in Gopalpur, and so on. Nonetheless, the entry into non-core petchem enterprise the place present petchem corporations are already struggling to make cheap returns might be margin dilutive to the corporate.

Valuation

We consider Petronet LNG Ltd. is effectively positioned to profit from the large potential that India has to supply for the exponential progress in vitality consumption. We suggest a BUY ranking within the inventory with the goal worth (TP) of Rs.352 14x FY25E EPS.

Dangers

  • Geopolitical disturbances – Geopolitical dangers comparable to battle outbreaks, authorities instability or some other social unrest of the like might end in acute provide chain disruption thereby impacting the corporate’s operations.
  • Capital misallocation threat – Capex plans into non-core petchem enterprise might stress the corporate’s capital allocation and stability sheet. The corporate expects to fund the challenge by means of a debt: fairness mixture of 70:30 to optimise its capital construction and proceed with the prevailing stage of dividend payout. Petchem funding wants very excessive margins to satisfy administration targets of profitability.

Recap of our earlier suggestions (As on 19 Apr 2024)

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