Moderate LNG prices, expansion at Dahej by 5mt by H1 FY26 and the completion of the Kochi-Bengaluru pipeline by CY25 should bode well for Petronet LNG, with cash flow hits from the Gopalpur terminal and the petrochemical project to be relatively back ended.
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With the sharply improved LNG pricing environment, 5mt capacity expansion at Dahej by H1 FY26 and the visibility of completion of Kochi–Bengaluru pipeline by CY25, available capacity may improve materially for Petronet LNG Ltd. by FY26E.
Our revised estimates, therefore, factor in a reasonable 7% EPS CAGR over FY26–28E. On the other hand, a high run-rate required for the petchem project to achieve reasonable returns does create headwind for Petronet LNG’s return ratios in the near to medium term.
On balance, Petronet LNG is looking at EPS growth of ~7% (EPS CAGR FY26–28E), steady cashflow (aggregate operating cash flow of Rs 151.7 billion over FY26–28E) and attractive dividend yield (~5.2% average over FY26–28E).
Valuations of 9.1x FY28E EPS and 1.7x price/book value, in our view, are fair – with our revised estimates and target price offering a 11% upside from current market price, particularly in light of the ~13% dip seen in the stock in the last six months. Upgrade to Add (from Sell)
Key risks Upside risks:
Stronger utilisation; sharp reduction in LNG prices; and favourable extension of the RasGas contract.
Downside risks: Higher disruption in Russian supplies; and slower execution of expansion plans.
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