After hitting a 52-week high of Rs 302 apiece on the BSE, shares of Petronet LNG slipped over 7 per cent in the intra-day deals on Monday. The company on Sunday announced it will invest $2.5 billion for nearly 20 per cent equity stake in US energy major Tellurian Inc's Driftwood project to negotiate the purchase of 5 million tonnes of gas per annum.
The Houston-based Tellurian and Petronet LNG Ltd (PLL) signed an MOU on Saturday under which the latter and its affiliates will import 5 million tons of LNG (liquefied natural gas) from America over a 40-year period. The agreement also includes PLL making investment in the equity of $ 28 billion Driftwood project in Louisiana to secure the LNG. CLICK TO READ FULL REPORT
"Petronet, India's largest LNG importer, will be able to deliver clean, low-cost and reliable natural gas to India from Driftwood. Increasing natural gas use will enable India, currently the sixth-largest buyer of US LNG, to fuel its impressive economic growth to achieve Prime Minister Modi's goal of a USD 5 trillion economy, while contributing to a cleaner environment," Tellurian said in a statement.
Analysts at Edelweiss Securities are, however, cautious on Petronet LNG post this deal as they believe the move entails a significant shift from the company’s current utility model and opens up the company to gas price and project execution risk. Moreover, "with current Permian gas prices at USD -1.5/mmbtu (Metric Million British Thermal Unit), an FOB (free-on-board) price for PLNG at USD 3 seems attractive; however, prices will rise by 2025 with significant upcoming liquefaction capacity in the US," they wrote in a report dated September 23.
The brokerage has maintained cautious stance on the stock with a 'HOLD' rating and discounted cash flow (DCF)-based target price of Rs 242/share. "With a domestic surplus of regas capacity, pricing pressure will keep regas margins in check. Diversification into US LNG can return pricing power only if Permian gas prices continue to remain negative. Furthermore, timely startup of Driftwood LNG will become critical for PLNG post equity investment," the brokerage added.
At 12:44 pm, the stock was trading 5 per cent lower at Rs 253.55 apiece on the BSE. In comparison, the benchmark S&P BSE Sensex was ruling at 39,403.86, up 1,389 points or 3.65 per cent. On a year-to-date (YTD) basis, shares of Petronet LNG have outperformed the market by rising over 19 per cent (as of Friday's close.) The S&P BSE Sensex, on the other hand, has gained over 5 per cent during the same period.