Petronet LNG: Volume growth challenges persist. Maintain  REDUCE

India’s total gas consumption during the first four months of FY26 (Apr 25- Jul 25) has declined by 6.8% YoY and gas imports have declined by 9.7% YoY. Higher reduction in gas imports compared to the decline in total gas consumption was owing to higher LNG prices compared to alternative fuels. LNG price fell in August 25 (-7.4% MoM) and September 25 (-2.4% MoM till 19th Sep 25) but is still at 18.7% premium to Fuel Oil (FO) prices. We expect total gas consumption and gas import volume should see an uptick in Q2FY26 as refineries come back online after undertaking planned shutdowns in previous quarter and moderation in LNG prices. However, we believe PLNG will not observe any significant improvement in its market share. Its Kochi terminal shall continue to remain handicapped due to inadequate connectivity. Given muted volume growth and subdued return ratios resulting from high capex cycle over the next 3-4 years, PLNG’s profitability growth, FCF generation and return ratios should remain under pressure during FY26E-FY28E. We expect EPS to grow at a CAGR of 2.7% during FY25-FY28E as against 7.4% recorded during FY21-FY25. Aggregate FCF of INR -38.14 bn to be generated during FY26-FY28E vs. INR 146bn generated during FY21-FY25E and RoE to decline from average of 23.9% recorded during FY21-FY25 to an average of 17.2% during FY26-FY28E. Hence, we maintain our REDUCE recommendation on PLNG with a TP of INR 280/sh.

Petronet’s market share is on a declining trend: PLNG’s dominance in regasification of imported LNG has been on a declining trend. The company is facing competition from LNG terminal at Mundra, which is operated by GSPL LNG Ltd. The utilization of LNG terminal at Mundra, which has a total capacity of 5MMTPA, has increased from 16% in FY23 to 22% in FY25 owing to higher offtake from GSPC (the parent entity of GSPL LNG Ltd). After the completion of GSPL’s Anjar-Palanpur pipeline (construction of which was approved by PNGRB in Mar 25), offtake from the Mundra terminal could further increase in the coming years. Gail’s Dabhol LNG terminal has completed breakwater. Earlier, LNG cargoes used to divert from Dabhol to Dahej LNG terminal during monsoon. Now with breakwater facility in place, it enables Dabhol terminal to run throughout the year. This will reduce utilization of Dahej terminal. In addition, the Kochi terminal of PLNG remains underutilized due to lack of pipeline connectivity, adding on to the woes.

India’s gas consumption slows down: The total gas consumption in India for the period Apr 25-Jul25 declined to 23,190mmscm from 24,895mmscm reported during the same period last year, resulting in a 6.8% YoY decline. This reduction in consumption was mainly driven by drop in demand from the power (-22% YoY) and refining (-21% YoY) sectors. Early onset of monsoon impacted the demand from power sector and planned shutdowns undertaken by oil refiners resulted in a reduction in demand.

Financial summary

Source: Company, HSIE Research

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Source: HDFC Securities Institutional Equities

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