Petronet LNG Valuation Excel Model and Intrinsic Value of Shares

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Petronet LNG Valuation : About the Company

Petronet LNG is promoted by GAIL (India) Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL). There are various services offered by Petronet LNG Limited, like regasification, storage and reloading, bunkering, gassing-up and cooling-down facilities and LNG truck loading facilities. From here, we go ahead with Petronet LNG Valuation and Intrinsic Value of its shares.

The company operates in an asset-heavy industry in which market dominance comes through scale, capacity, reach and infrastructure. The Dahej terminal has a nominal capacity of 17.5 million tonnes per year (equivalent to 70 million cubic metres per day of natural gas at standard conditions), the Kochi terminal has a capacity of 5 million tonnes per year (equivalent to 20 million cubic metres per day of natural gas). The Dahej terminal is meeting around 40% of the total gas demand of the country.

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The company is in the process to build a third terminal in Gangavaram, Andhra Pradesh. Besides this, the company is also backed by some of the largest Indian PSU’s and has a robust order book. The company is also exploring suitable opportunities within and outside of India to expand its business presence. 

Read more here: Petronet LNG Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares

You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Petronet LNG Valuation.

Financial Year Revenue Growth Rate
Year 1 -11%
Year 2 -23%
Year 3 28%
Year 4 18%
Year 5 14%
Revenue Growth Rates: Petronet LNG Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Petronet LNG Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

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Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 16634 11774 15494 20058 24045
Free Cash Flow to Equity 13910 -23317 39195 37832 39200
FCFF and FCFE values: Petronet LNG Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 24044.69
Growth Rate 5.00%
Cost of Capital 9.16%
Terminal Value 607354.88
Terminal Value: Petronet LNG Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Petronet LNG Valuation.

WACC Calculation for Petronet LNG Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Petronet LNG Valuation. (Units are INR Millions)

PV of FCFF and FCFE for Petronet LNG Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFE and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Petronet LNG Valuation Units
PV in INR Million 452795
No of Shares Outstanding (In Million) 1500
Intrinsic Value 301.86
Current Market Price of Share 249.00
Current Discount/Premium -18%
Intrinsic Value of the Shares: Petronet LNG Valuation

Petronet LNG Valuation and Intrinsic Share Price = INR 301.86

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References: Investopedia
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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