While maintaining a BUY on the stock of Petronet LNG (PLL) we have cut our target price to Rs 175 (8.7x FY14 valuations) as significant headwinds in terms of pricing pressures, step up nature of the input cost pricing could affect fortunes. In addition any clamp down by PNGRB on marketing margins ( a la Indraprastha Gas Ltd) could seriously dent marketing margins and is always a hanging sword. Also PLL has maximised efficiencies of its facilities and further increments in capacity utilizations from the current 107% seem unlikely. Although there is strong visibility on volume growth, capacity expansion is backended for FY13 and hence the stock is expected to remain an underperformer for a couple of quarters. The commencement of the Kochi terminal and jetty expansion activity at the Dahej terminal is expected to lead to significant ramp up in capacity from Q4FY13. However the proposed dilution of equity to raise resources to the tune of Rs 1500-2000 crores for its planned 5 MMTPA facility at Gangavaram, Andhra Pradesh would lead to dilution of future earnings However current valuations still remain attractive (given the adverse macro backdrop for corporate earnings) and our target price of Rs 175 provides a possible 25.7% upside from the current levels.
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||Vinit Bolinjkar Head of Research, Ventura Securities Ltd
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