Citi has flagged potential regulatory risks for Petronet LNG Ltd., warning that evolving dynamics could empower the company's gas offtakers. According to Citi's note published on Tuesday, January 6, regulatory and competitive dynamics may shift bargaining power in favour of the company's offtakers. The brokerage firm maintained its 'sell' rating on Petronet LNG with a price target of ₹260, which implies a potential downside of approximately 10% from recent trading levels. Citi reiterated its cautious stance, arguing that downside risks from regulation and competition continue to outweigh upside potential in the stock.
The concerns stem from a recent paper published by the Petroleum and Natural Gas Regulatory Board (PNGRB) that examined various cost components across the gas value chain, including upstream, transmission, marketing, regasification, and taxation. The regulator has made recommendations that primarily involve modifications to the administered price mechanism (APM) allocation, rationalisation of taxes, and regulation of regasification. As reported by Citi, this clearly underscores PNGRB's belief that regasification terminals need to be brought under the regulatory framework via regulation of regas tariffs. Citi underscored that the proposed regulation of regasification tariffs is particularly significant, as it reinforces the regulator's long-standing view that LNG terminals should fall under a formal regulatory framework.
According to Citi's analysis, regulatory intervention could materially weaken Petronet LNG's pricing power, especially at its flagship Dahej terminal. The brokerage warned that such moves could shift negotiating leverage in favour of LNG offtakers, increasing the risk of tariff renegotiations, particularly for volumes tied to renewed long-term Qatar LNG contracts. This regulatory intervention could trigger renegotiation demands for the regasification tariffs at Dahej, representing a significant concern for Petronet LNG's operations and future profitability under current contractual arrangements. The pressure could impact profitability and returns over the medium term.
Despite these concerns, analyst sentiment on Petronet LNG remains divided. Among 33 analysts covering Petronet LNG, 14 have a 'buy' rating, 10 have a 'hold' rating, and nine have a 'sell' rating, including Citi. Shares of Petronet LNG saw a modest rise of 1.8% to ₹293.6 on Tuesday, January 6. However, the stock has declined 11.6% over the past year, reflecting ongoing market concerns about the company's prospects amid regulatory uncertainties and the evolving competitive landscape in India's LNG sector.
