Petronet LNG sees Kochi growth avenues as Dahej tariff concerns ease

Investment View and Share Performance

Motilal Oswal Financial Services maintained its Buy view on Petronet LNG in its September 28, 2026 update. The broker believes the Kochi terminal can become a material new earnings driver, while investor concerns about a reduction in Dahej regasification tariffs appear overdone.

Petronet LNG shares had corrected around 11 per cent over the preceding seven months. The decline reflected Qatar Energy's force majeure declaration, spot LNG prices averaging about USD19-20 per mmbtu in 1HFY27 year-to-date versus about USD12 per mmbtu in FY26, and concerns over Dahej tariffs.

Kochi: Multiple Potential Revenue Drivers

The broker identifies three potential incremental revenue avenues at Kochi:

• Gassing Up and Cooling Down (GUCD): This could generate annual revenue of about Rs 1 billion. Turnaround time has improved to 1.5 days from four days, comparable with Singapore.
• Pipeline connectivity: The Kochi-Mangalore-Bangalore pipeline could be commissioned by March 2027, while GAIL has guided for December 2026. The connection would link Kochi to the national gas grid.
• Bunker fuel supply: Petronet LNG is exploring bunker fuel supply at Kochi, although this opportunity remains nascent.

Management expects Kochi utilisation to rise to around 40 per cent over the next two to three years, supported by Kerala city gas distribution build-out and higher LNG trucking. Kochi volumes were 15 Tbtu in 1QFY27, up 15 per cent year on year, while utilisation was 24 per cent.

Dahej: Tariff Resilience and Utilisation Outlook

Motilal Oswal believes the Dahej tariff floor remains intact. Management stated during an investor interaction that the tariff for the renegotiated 7.5 mmtpa Qatar contract, extended to CY48 and converted from an FOB to DES structure, will not fall below the prevailing tariff because Dahej already has the lowest tariff among Indian LNG terminals. Lower shipping costs would be passed through to offtakers.

Around half of Dahej's book is under long-term contracts, while tolling volumes are contractually locked through CY35 with defined tariffs and minimum utilisation commitments. The broker nevertheless assumes a 5 per cent Dahej tariff reduction in FY28E, followed by 4 per cent annual tariff growth for both terminals, which it views as conservative.

Dahej handled 192 Tbtu in 1QFY27, down 7 per cent year on year, with utilisation of 68 per cent. Capacity has expanded to 22.5 mmtpa, with technical flexibility to 25 mmtpa. The expansion was completed two months ahead of schedule at Rs 5.6 billion, materially below comparable greenfield terminal costs.

Near-term utilisation is constrained by high LNG prices rather than demand, according to the broker. Petronet LNG has started roughly 0.5 mmtpa contracts each with ExxonMobil and Equinor for the Deepak Group. The use-or-pay dues overhang has reduced from a peak of Rs 20 billion to Rs 3.1 billion net of provisions, and management does not expect offtaker defaults during the year.

Petrochemical, CBG and LNG Trucking Initiatives

The Dahej petrochemical project is 42 per cent complete and is scheduled to start in mid-FY29, with more than Rs 200 billion of planned capital expenditure. Motilal Oswal highlights the following project benefits and developments:

• PDH propylene yields of up to 85 per cent.
• Cold-energy savings worth roughly Rs 1.2 billion annually in operating costs and Rs 4 billion of avoided capital expenditure.
• Expansion of propane and ethane handling capacity to 3 mmtpa each from 1.2 mmtpa.
• Board approval for Rs 20 billion for 10 CBG plants with 180 tonnes per day of capacity through joint ventures, targeting a minimum equity IRR of 16 per cent.

Small-scale LNG trucking is progressing slowly because LNG prices have risen much faster than diesel prices.

Financial Estimates and Valuation

Motilal Oswal's DCF-based target price is Rs 362, using an 11.5 per cent WACC and 2 per cent terminal growth rate. The valuation incorporates full petrochemical capital expenditure but values the complex conservatively at 0.5 times FY29E price-to-book.

Key Risks to the Investment Thesis

• Persistently elevated LNG prices could delay terminal utilisation recovery.
• Continued Gulf supply disruption could affect the outlook.
• Grid connectivity could be delayed.
• Execution or commercial scaling of the Kochi, petrochemical, CBG and LNG trucking initiatives could be slower than expected.