Petronet LNG to Foray into Liquefaction of Natural Gas in India

Petronet LNG Ltd plans to foray into liquefaction of natural gas in India and has initiated talks with Focus Energy Ltd to set up a small liquefaction unit at the latter's fields in Rajasthan. Many natural gas fields in the country are with little gas pipeline connectivity, so it make sense for the company to set up LNG liquefication plant and get it transpor ted. Focus Energy has couple of blocks in Rajasthan were the gas reser ves is in abundant quantity.

Petronet LNG and Focus Energy are expected to evaluating the possibilit y of setting up a small liquefac tion plant at the block, However, the talks are at a nascent stage. We believe this step by Petronet LNG could be in the right direc tion and may benefit it, as it would get the first mover advantage. We have positive outlook on the stock as outlook on gas consumption remains strong, backed by a benign pricing outlook . Moreover, capacit y expansion at the Dahej terminal (2.5m MT) would complete by 4QFY19 and utilisation at the Kochi terminal should improve markedly by FY20E. We believe the earnings for FY18E and FY19E to improve by 6% and 8%, given the strong outlook on volume growth. The stock is trading at ~16x FY19E earnings.