Petronet LNG Q1 FY27 earnings beat as third-party volumes cushion Qatar disruption

Investment View and Valuation

Prabhudas Lilladher retains an ACCUMULATE rating on Petronet LNG and revises its target price to Rs 297 from Rs 300. The broker values the company at 10 times FY28E EPS. Sharply higher third-party volumes partly offset the collapse in long-term LNG volumes following Qatar Energy's force majeure. However, the lower utilisation outlook has led to reductions in the broker's FY27E and FY28E estimates.

Q1FY27 Financial Performance

Petronet LNG reported a strong operating performance in Q1FY27, with EBITDA and PAT exceeding both Prabhudas Lilladher's estimates and Bloomberg consensus. EBITDA margin expanded substantially, supported by trading and inventory gains.

The EBITDA margin benefited from a Rs 300 crore trading gain and a Rs 190 crore inventory gain. Management indicated that the trading and inventory-gain trend could continue if spot LNG prices remain materially above long-term prices.

Volumes and Terminal Utilisation

Total Q1FY27 volumes declined 5.5% quarter on quarter and 6.0% year on year to 207 TBtu. Long-term volumes fell sharply as the Qatar force majeure remained in force, while third-party volumes increased as offtakers diversified their supply sources.

Qatar Disruption and Volume Outlook

Qatar Energy declared force majeure from February 28, 2026 to June 30, 2026 because of disruptions in the Strait of Hormuz. This resulted in no LNG loading during Q1FY27, although one stranded Qatar cargo was delivered at Dahej on June 19, 2026.

FY27 utilisation will depend on the reopening of the Strait of Hormuz and the resumption of Qatar volumes. Management indicated that offtakers are currently compensating for about two-thirds of the Qatar volume shortfall through alternative supplies. However, direct trading from other regions could face tax implications, raising costs and reducing Petronet LNG's competitiveness relative to direct imports by offtakers.

Prabhudas Lilladher expects the higher third-party contribution to continue in Q2FY27 and has increased its assumed FY27E third-party volume mix. Based on Dahej's expanded 22.5 million metric tonne per annum capacity, the broker has reduced its FY27E utilisation assumptions for Dahej and Kochi to 68% and 24%, respectively, from 71% and 30% earlier. Utilisation is expected to recover to 73% at Dahej and 30% at Kochi in FY28E as volumes normalise.

Estimates and Earnings Outlook

Projects, Capex and Contract Developments

• Mechanical completion of the Kochi-Bangalore pipeline is expected by the end of Q2FY27, which should support higher Kochi throughput.
• The petrochemical project remains on schedule, with approximately 40% physical progress and Rs 470 crore spent.
• FY27 capex guidance is Rs 9,060 crore, while FY28 capex is expected to be at a similar level.
• Discussions on the Qatar contract beginning in 2028 are ongoing, with management expecting closure within one to two quarters.

Key Uncertainties

• Duration of the Qatar supply disruption and timing of the reopening of the Strait of Hormuz.
• Recovery in long-term LNG volumes and terminal utilisation.
• Sustainability of trading and inventory gains if the relationship between spot and long-term LNG prices changes.
• Potential tax implications and higher costs associated with direct trading from other regions.