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Motilal Oswal Report
Petronet LNG Ltd. reported inline Ebitda of Rs 11.4 billion in Q1 FY24. Dahej utilisation improved notably to 98%, while utilisation at Kochi stood at 21%.
The improvement in utilisation levels was led by spot LNG price that dipped 29% QoQ to ~$11/metric million British thermal unit. Management expects liquefied natural gas prices to sustain at current levels over the next few months, which would aid near-term utilisation to remain at present levels.
Petronet LNG may also consider construction of land-based terminal at the East coast, if floating storage and regasification units market remains tight. Construction of land-based terminal may raise upfront capex to ~Rs 50 billion versus ~Rs 23 billion for FSRU. However, operating cost of FSRU is higher than land-based terminal; hence, the total costs even out for both projects over a five-year period.
Despite increase in volumes, Petronet LNG's long-term volume growth prospects remain bleak due to intensifying competition from the upcoming LNG terminals as well as rising domestic gas supply.
As highlighted in our previous report, sustainability of high return ratios also remains a key concern for Petronet LNG as the return on capital employed for upcoming projects (Dahej expansion, Gopalpur FSRU and Propane Dehydrogenation unit-Polypropylene plant) is likely to be lower at 7-18%.
Hence, we reiterate our 'Neutral' rating with a target price of Rs 225.
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