Petronet LNG -Concerns priced in; offers decent upside, Prabhudas Lilladher,

PLNG has witnessed ~20% correction from its highs on account of regulatory
concerns over LNG terminals and cap on marketing margins. This, coupled with
limited near-term earnings trigger, led to the subdued stock performance. However,
we believe potential regulatory concerns are exaggerated and near-term flattish
earnings profile overlooks the strong earnings potential, starting FY15. We maintain
a ‘BUY’ on the stock with revised target of Rs176/share (~19% upside).

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􀂄 Concerns over potential regulation overblown: Currently, there is no regulation
for LNG terminals in India. However, our analysis of the various regulations
across geographies highlights the fact that some of the concerns over the
potential third-party access of new LNG terminals or expanded capacity is
exaggerated. International countries have increasingly been more liberal
towards regulation of the LNG terminals.
􀂄 Dwindling domestic production unlikely to lower LNG intake capacity: Likely
take-or-pay agreement for all the incremental Dahej expansion would reflect
Dahej terminal’s first-mover advantage in a scenario of tighter domestic gas
supplies. This, coupled with opening of newer demand centres on account of
newer pipelines, likely reforms in key user industries (led by fertilizer) and likely
upward revision of the domestic gas prices is likely to put to rest concerns over
utilisation of the upcoming incremental capacity at Dahej.
􀂄 Outlook: PLNG’s utility nature of business (stable regasification margins and
term contracts), low regulatory risks and expanding volumes on account of
strong demand estimates, hold it in good stead. We believe that the concerns
over the regulatory intervention on the marketing margin front as well as
PNGRB regulating regasification charges are exaggerated.