Petronet LNG valuations imply the stock is at a point of maximum pessimism. Buy for target price f ₹410 (50% upside): Motilal Oswal

Volume recovery, new capacity key triggers for re-rating

 We recently upgraded PLNG to BUY (Tide is turning, slowly) on inexpensive valuations and strong upcoming capacity growth. In this short note, we reiterate our BUY rating on PLNG and highlight: 1) PLNG’s market share in India’s LNG imports, which slipped to 69% of total imports in FY25 (FY15: 78%), could start to rise as new Dahej capacity starts operations; 2) Assuming a modest 4.5% CAGR in India’s natural gas (NG) consumption over FY25-30 and a 2% CAGR in domestic NG production, India’s LNG imports need to grow at a robust 6% CAGR (~32mmscmd increase in LNG imports over FY25-30), and this should benefit PLNG’s new expanded capacity; 3) Our current assumptions imply that PLNG secures only ~41% share of incremental import growth (69% of total imports in FY25); 4) Global liquefaction capacity is set to rise by 10%/11% YoY in CY26/27 (historical LNG demand growth: 5%-6%), likely ushering in an era of lower-for-longer LNG prices; 5) While brownfield expansion from existing terminals is a risk, we believe this is unlikely to play out given the lackluster utilization at existing facilities.

 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 at the rock bottom. Reiterate BUY with a DCF-based TP of INR410.

Valuations imply the stock is at a point of maximum pessimism

PLNG trades at 8.9x FY27E EPS compared to its historical one-year forward P/E of 10.4x. Our DCF-based TP (WACC: 10.5%, TG = 2%) assumes a 10% tariff cut in FY28, followed by a 4% increase 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 FY27E. In an extreme bear-case DCF scenario, we assume 0% terminal growth and no tariff hike after a 20% cut in FY28, implying a valuation of INR274/sh. At 8.9x FY27E P/E and a ~4.3% dividend yield, we believe valuations are at the rock bottom. Reiterate BUY with a DCF-based TP of INR410.

Petronet LNG Motilal Oswal