Petronet LNG: brighter outlook on volumes provides assurance

In the June quarter, the company beat volume estimates. The outlook for the September quarter is also upbeat. Analysts at Jefferies India Pvt. Ltd said in a report on 5 September: “Monthly LNG import estimates vary widely across sources, but The Gujarat Maritime Board suggests that imports at Dahej surged to 1.68 million tonnes in June when Petronet commissioned its 2.5-million-tonne expansion and have held strong at nearly 1.55 million tonnes in July and August as well."

If the momentum persists, investors could well see another quarter of robust volumes.

Petronet LNG has expanded its Dahej terminal capacity from 15 million tonnes per annum (mtpa) to 17.5 mtpa in June. Recall that during the June quarter, the Dahej terminal had operated at 112% of its nameplate capacity.

On the other hand, capacity utilization at its Kochi terminal was low, at just 14%. Kochi utilization levels are expected to gradually improve, a parameter that investors will watch closely. Petronet LNG is looking to commission the Kochi-Mangaluru pipeline in October, after which investors can expect volumes to expand further.

Analysts at Kotak Institutional Equities said in a report last month: “Dahej’s long-term contractual commitments, pipeline connectivity, lower re-gasification tariffs and favourable economics will hold in good stead against potential competition from coming LNG terminals."

Some analysts, though, are concerned about capital allocation. “Uncertainty regarding free-cash-flow utilisation continues to be the key overhang on the stock, while higher dividend payout until deployment in proposed projects may offer some assurance," added the Kotak analysts.

Based on Bloomberg data, the Petronet LNG scrip trades at nearly 18 times FY20 estimated earnings, suggesting that investors are clinging on to a good portion of the bright picture in the share price. But the recent upside may keep meaningful upsides at bay.