'Reduce' Petronet LNG Shares Maintains HDFC Securities, Trims Target Price — Here's Why

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HDFC Securities Institutional Equities

At the current market price, Petronet LNG Ltd. is trading at 11x Sep 26 EPS, which is a premium of ~4% to its five-year average 1 year forward PE of 10.7x.

Given the high capex cycle and growth challenges for the next three-four years, this premium valuation is unwarranted, in our view. Hence, we reiterate our Reduce call on Petornet LNG with a target price of Rs 280/share.

India’s total gas consumption during the first four months of FY26 (Apr 25- Jul 25) has declined by 6.8% YoY and gas imports have declined by 9.7% YoY.

Higher reduction in gas imports compared to the decline in total gas consumption was owing to higher LNG prices compared to alternative fuels. LNG price fell in August 25 (-7.4% MoM) and September 25 (-2.4% MoM till Sep 19, 2025) but is still at 18.7% premium to fuel oil prices.

We expect total gas consumption and gas import volume should see an uptick in Q2 FY26 as refineries come back online after undertaking planned shutdowns in previous quarter and moderation in LNG prices.

However, we believe PLNG will not observe any significant improvement in its market share. Its Kochi terminal shall continue to remain handicapped due to inadequate connectivity.

Given muted volume growth and subdued return ratios resulting from high capex cycle over the next three-four years, Petonet LNG’s profitability growth, free cash flow generation and return ratios should remain under pressure during FY26E-FY28E.

We expect EPS to grow at a CAGR of 2.7% during FY25-FY28E as against 7.4% recorded during FY21-FY25. Aggregate FCF of Rs -38.14 billion to be generated during FY26- FY28E vs Rs 146 billion generated during FY21-FY25E and RoE to decline from average of 23.9% recorded during FY21-FY25 to an average of 17.2% during FY26-FY28E.

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