ICICI Securities Recommends Holding Petronet LNG, Sets Target Price at Rs 210

In a recent research report dated October 31, 2023, ICICI Securities has reiterated its recommendation to “hold” Petronet LNG (PLNG) stock while setting a target price of Rs 210.

Petronet LNG’s latest financial results showed a 4% year-on-year improvement in EBITDA, amounting to INR 12.1 billion, and a 10% year-on-year increase in PAT, totaling INR 8.2 billion, with a 3/4% quarter-on-quarter rise. The company’s management has announced an estimated investment in the PDHPP plant, with a nameplate capacity of approximately 0.75 million metric tons per annum (mtpa) of PDH, divided into 0.25kt of Propylene and 0.5mt of Polypropylene.

This investment is projected at INR 210 billion, significantly higher than the earlier indicative figure of INR 140 billion, which was attributed to ethane handling facilities and some undisclosed costs. ICICI Securities expresses skepticism regarding the management’s claim of a 20% IRR (Internal Rate of Return) for the project, as their preliminary analysis suggests a lower return profile. Despite the stock’s low valuations, recent underperformance, steady EPS growth, and high dividend yields, ICICI Securities reiterates its “hold” recommendation.

However, ICICI Securities points out that this ambitious diversification project represents a significant risk for Petronet LNG, as it ventures into unfamiliar territory. Therefore, they continue to recommend a “hold” position with a revised target price of INR 210 per share.