Fuelled For Growth - Petronet LNG

Petronet LNG formed a part of our recommendations in Issue 15 dated July 7-20, 2008 in the Low Price Scrip column at a price of Rs 52. We went ahead with this recommendation in the wake of the volatile market situation in existence when recommending safe bets was the need of the hour. And in this scenario there wasn’t any other better scrip than Petronet LNG. Besides, it should be noted that Petronet LNG has been a consistent performer since its IPO, growing at a three-year CAGR of 50 per cent in the topline. The company also had a huge expansion plan, which would double its capacity at its Dahej Terminal to 10 MMTPA from 5 MMTPA. This gave a good growth visibility for the company. Finally, with valuations being very attractive, it made sense to recommend Petronet LNG.

Post our recommendation, this scrip did move up 26 per cent to touch a high of Rs 65.45. Currently trading at Rs 39.35, it is down 24.32 per cent from its recommended price of Rs 52. One of the reasons for this is the below expectation performance of the company in H1FY09. However, we feel that the current price already reflects this. Besides, this company is attractive considering its huge cash and equivalent worth Rs 884.68 crore compared to its market cap of Rs 2,887.50 crore. Adjusting for this, the market cap to sales drops to a mere 0.30x. Hence the possibility cannot be ruled out that the counter might catch up with the valuations. In fact, this counter has been in momentum and hence it would be better to hold this scrip now to cover up the losses rather than exiting at current levels.