Petronet LNG’s petchem diversification raises concerns; shares slide to 52-week low on rating downgrade, target cut

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Petronet LNG share price continued its downward trend on Tuesday, a day after the company’s board approved to diversify into petchem business by setting up a Petrochemicals project at an estimated cost of ₹20,685 crore. Petronet LNG shares declined over 3% to hit a 52-week low of ₹195.15 apiece on the BSE on Tuesday. The fall comes after the stock cracked 8.5% in the previous session.

The company’s board approved to set up a petrochemicals project of 750 KTPA of PDH & 500 KTPA of PP plant including propane and ethane handling facility at Dahej at an estimated cost of ₹20,685 crore. The project will be commissioned after 4 years. Analysts believe the capex plans in non-core petchem businesses will stress the company’s balance sheet and could be value-destructive.

Petchem investment needs very high margins to meet management targets of profitability. Read here: Petronet LNG Q2 Results: Net profit rises 4.4% QoQ to ₹855.7 crore; approves dividend, petchem project; stock falls 7% At these costs, the company’s management has stated that at a basic assumption of Propane Propylene margin of $200/t and $600/t margin of Propylene-Propane, the project can deliver an IRR of 20% and equity IRR of 30%. The management also mentioned an expected EBITDA of ₹4,000 crore from the project at a steady state.