MOSL: PETRONET LNG (Buy)-For the long haul-Volume growth to continue for a long time

​PETRONET LNG: For the long haul; Volume growth to continue for a long time

(PLNG IN, Mkt Cap USD5.0b, CMP INR427, TP INR546, 23% Upside, Buy)

• Though PLNG witnessed 5.8% volume CAGR over FY12-17, its volumes grew 25% in FY17, aided by favorable LNG prices and Dahej expansion. To better capture sporadic increases in offtake, as PLNG expands its Dahej facility and ramps up Kochi utilization, we believe a 3-5 year view on its prospects is desirable.
• We expect a volume CAGR of 10% over the next three years (FY17-20E) for PLNG. Low LNG prices along with lack of domestic gas availability and huge unmet demand is likely to result in sustained volume growth for PLNG for a long time to come.
• Additional factors contributing to our Buy recommendation: (1) lack of competition, (2) Dahej being the most economical facility, (3) firm contracts at Dahej and Kochi, and (4) expansion of gas pipeline network across India.

LNG imports to rise; Petronet LNG to be biggest beneficiary

• Amidst constrained domestic gas availability, LNG imports accounted for ~50% of total gas sales in India in FY17 compared with 32% in FY14. Even in an optimistic scenario of domestic gas production growing at a CAGR of 10.5% over FY17-22, we expect LNG consumption to rise at a CAGR of 10%. PLNG is best placed to benefit from this rise in demand.
• While existing LNG terminals face their own problems, we do not see much competition from upcoming LNG terminals. Dahej’s brownfield expansion makes it the cheapest alternative for LNG imports.