Stock Valuation: Petronet LNG Ltd (532522)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Energy – Oil & Gas – Refining & Marketing – Oil & Gas Refining & Marketing INR216.05
@ 25 Jul 2018
COMPANY PROFILE Petronet LNG Ltd is involved in the business of import and regasification of LNG and supply to BPCL, GAIL, IOCL and others. It deals only in one segment, Import and Re-gasification of Liquefied Natural Gas.

Petronet LNG is an oil & gas refining & marketing company formed by the government of India. The company operates out of terminals located at Dahej, Gujarat, and Kochi, Kerala. The Dahej LNG terminal serves as a LNG receiving and regasification terminal and offers tolling services to offtakers and bulk customers. The Kochi LNG terminal is in a special economic zone and serves as an LNG receiving, regasification, and re-loading terminal. Through a joint-venture company, Petronet LNG owns a solid cargo port at Dahej with facilities to import and export products such as steel, coal, and fertilizer in bulk. Sales are largely composed of regasified liquefied natural gas. A majority of revenue is derived from India.

Stock Code 532522
Valuation Analysis Below

Petronet LNG Market Cap to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Market Cap/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of INR216.05 as at 25 Jul 2018, Petronet Lng Ltd is trading at a Market Cap/EBIT Ratio of 10.0 times last 12 months earnings.  This is a 0.6% premium to its historical average Market Cap/EBIT Ratio of 9.9 times. (Price based on the historical average Market Cap/EBIT Ratio of the company is indicated by the red line.)
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from Estimates are from gurufocus and/or – Thomson Reuters.
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