Nomura Maintains Buy Rating on Petronet LNG, Raises Target Price to INR 345

Overview

Nomura has released a research report maintaining its 'Buy' rating on Petronet LNG (PLNG.NS), India's largest liquefied natural gas (LNG) importer, and raising its DCF-based target price from INR 340 to INR 345. Although geopolitical tensions in the Middle East reduced Dahej terminal utilization to 53% in March 2026, the firm believes volumes will see a strong recovery beginning in Q2 FY27 as the Strait of Hormuz reopens. Additionally, the company successfully recovered significant amounts through customer bank guarantees, substantially reducing concerns over revenue collection risk.

Core views

The core thesis centers on expected volume recovery and financial resilience. First, although 4QFY26 volumes declined ~6% quarter-over-quarter, this was primarily due to supply disruptions from Middle East conflicts in March; Dahej terminal utilization had reached 108% in January–February. Management expects Qatari Energy’s supply to normalize within 3–4 weeks once hostilities cease and the Strait of Hormuz reopens, driving a sharp volume rebound from Q2 FY27 onward. Meanwhile, new contracts with ExxonMobil and Equinor have already commenced, adding approximately 1 million tonnes per annum (mtpa) in volumes this year to partially offset the supply gap. Second, financial performance exceeded expectations. 4QFY26 EBITDA came in at INR 13.7 billion, up 1% QoQ and 16% above Nomura’s estimate. Adjusted EBITDA (excluding trading and inventory gains) stood at INR 12.1 billion, still 3% ahead of expectations. Notably, the company recovered INR 6.3 billion in 'Use-or-Pay' (UoP) receivables in 4QFY26 by enforcing downstream customer bank guarantees, reducing net UoP receivables to INR 4.1 billion and significantly alleviating market concerns about collection risk. Finally, capital expenditure and expansion plans are progressing as scheduled. The company’s FY27 capex budget is approximately INR 90 billion, with ~INR 75 billion allocated to the petrochemical project. Equipment for this project mainly originates from non-Gulf regions, avoiding supply chain disruptions. Additionally, the Bangalore–Kochi pipeline is expected to be completed in H1 FY27, significantly boosting Kochi terminal utilization and opening new markets.

Analysis framework

Nomura employs a Sum-of-the-Parts (SOTP) valuation combined with a Discounted Cash Flow (DCF) model. For the existing LNG regasification business, it uses a DCF model with a WACC of 12% and a terminal growth rate of 2% to derive intrinsic value. The upcoming petrochemical project is valued at 0.5x P/B. Based on improved utilization assumptions for Dahej and Kochi terminals, the firm raised FY27 and FY28 EBITDA forecasts by 10% and 8%, respectively, leading to a higher target price.

Methodology notes

• Valuation MethodDCF (Discounted Cash Flow)

  DCF (Discounted Cash Flow)

  The report discounts future cash flows using a WACC of 12% and a perpetual growth rate of 2% to assess the intrinsic value of the company’s existing terminal operations. This is a standard approach for valuing infrastructure assets with stable cash flows.

• Valuation MethodSOTP (Sum-of-the-Parts)

  SOTP (Sum-of-the-Parts)

  Given the company’s mix of mature LNG terminals and a new petrochemical project, the report applies different valuation multiples to each segment (petrochemicals at 0.5x P/B) and sums them to arrive at the total target price. This method is suitable for diversified businesses.

• Industry/ Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  The report analyzes how geopolitical conflict disrupted LNG supply (Qatari outages) and assesses demand-side elasticity (e.g., ceramic plants in Morbi), to forecast short-term volatility and long-term volume recovery.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Petronet LNG (PLNG.NS)

  Beneficiary: As India’s largest LNG importer, directly benefits from natural gas demand recovery and new terminal capacity ramp-up.

  Strengths

  Operates two dominant terminals (Dahej and Kochi); cost-pass-through model reduces price risk; robust UoP recovery mechanism.

  Weaknesses

  Short-term supply instability due to geopolitics; negative free cash flow in FY27–28 due to large capex.

  Comparison

  Compared to other Indian LNG operators, PLNG has the most mature long-term supply contracts and broadest customer base.

  Risks

  Uncertainty around timing of Strait of Hormuz reopening; increased domestic gas production could crowd out LNG demand.

Key data

• 4QFY26 EBITDAINR 13.7 billionUp 1% QoQ, 16% above Nomura’s estimate
• Target PriceINR 345Raised from INR 340, implying ~21.9% upside
• UoP Recovery AmountINR 6.3 billionRecovered in 4QFY26 via bank guarantees; net UoP receivables reduced to INR 4.1 billion
• FY27 Capex BudgetINR 90 billionApproximately INR 75 billion allocated to petrochemical project
• New Contract VolumesApprox. 1 mtpaFrom new contracts with ExxonMobil and Equinor, partially offsetting Qatari supply disruption

Impact & implications

The report highlights Petronet LNG’s unique business model—passing through gas costs to end customers, thereby bearing minimal commodity price or FX risk—and annual 5% tariff escalations in long-term agreements, which provide a stable earnings base. With the completion of the Bangalore–Kochi pipeline and normalization of Strait of Hormuz operations, the company is positioned for a significant earnings rebound in H2 FY27. Although high capex may result in negative free cash flow in FY27–28, a strong balance sheet can support the expansion.

Risks

• Volumes below expectations
• New competing terminals or rapid increase in domestic gas production
• Inability to secure annual 5% tariff escalations at Dahej and/or Kochi terminals

What to watch

• Status of Strait of Hormuz reopening
• Significant decline in spot LNG prices
• Progress in signing favorable sales agreements with downstream customers
• Commissioning timeline of the Bangalore–Kochi pipeline