This Is A Stock To Buy For 40% Returns, Says Broking Firm Motilal Oswal

The stock of Petronet LNG is a buy at the current levels and can generate 40% returns from the current levels, according to Motilal Oswal.

The broking firm believes the stock can rally from the current market price of Rs 223 to Rs 310, thus giving investors a superlative profits of around 40%.

Positive on the gas story

Motilal Oswal says that it continues to remain positive on the gas story in India as the market share of gas in the primary energy mix is just 6%.

"It is expected to almost double by CY30 (growing at a compounded annual growth rate of 6-8%, as per our gas demand-supply model), primarily on account of the development of new CGDs and an increase in consumption at fertilizer and refining/petchem plants," the brokerage has said.

Apart from the committed capex plan of Rs 41 billion for the Dahej expansion over the next three years, Petronet LNG had announced Rs 120 billion in investments in LNG retailing and compressed biogas in the last quarter of FY21. The commentary has raised concerns on capital allocation and possible returns from the new investments, thereby keeping the stock under pressure.

"Of the capital expenditure plans announced by the company (such as setting up 1,000 LNG stations: Rs 80 billion, a biogas plant: Rs 40 billion, an additional tank in Kochi: Rs 7 billion, and an LNG terminal on the east coast: Rs 16 billion), we believe both LNG retailing and biogas are more futuristic in nature and may not see any significant capex over the next 2-3 years," Motilal Oswal has said in its report.

"The stock trades at 9.2 times FY23E EPS and 5.3 times FY23E EV/EBITDA. We value Petronet LNG on a DCF basis to arrive at a fair value of Rs 310 and maintain Buy on the stock," the brokerage has said.

We wish to inform our readers to be careful when investing in stocks given that the Sensex has now rallied past the 56,000 points mark.

Disclaimer
Investors should certainly not take any trading and investment decision based only on information discussed in this article. We are not a qualified financial advisor and any information herein is not investment advice. It is informational in nature, which is taken from the brokerage report of Motilal Oswal Institutional Equities. Please do consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.