Analysts have doubts over the proposed returns of Petronet LNG Ltd's ₹20,685 crore petrochemical project at Dahej in Gujarat that envisages a total propylene capacity of 750 ktpa and additional volume of hydrogen (H2).

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Petronet LNG in a recent conference call with analysts shared the details of its planned project in Dahej.

According to the company, the petrochemical project will have a total propylene capacity of 750ktpa. Out of the total capacity, 250kt of propylene will be sold directly and the balance will be converted to polypropylene.

The project will also produce additional volumes of Hydrogen (H2) and is expected to complete in four years with the commissioning target of October 2027.

The management sounded confident over completing the project within the timeline and stated that there were limited chances of project cost or time overruns.

The company also announced that 250kt of Propylene and 11kt of H2 sales have already been finalised with Deepak Nitrite. Petronet LNG also stated that it has some sort of hedging in place to protect pricing fluctuations and also does not see input sourcing of ethane and propane as a challenge.

Commenting on the project, ICICI Securities stated that to achieve even a nominal 14% pre-tax ROCE (return on capital employed), the project has to deliver an EBITDA of ₹4,000 crore.

“This is 2X of what RIL earns today,” the brokerage noted.

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It also stated that it was unable to understand the rationale of the project, and financial synergies with the “existing Regas project is not really clear”.

Jefferies also highlighted that the management reiterated the attractive economics of the project based on seven-year average prices.

“Our calculations suggest low-to-mid single-digit ROE on PLNG's investment across the cycle,” Jefferies noted.

“The management is confident; we are less convinced,” it stated.

Petronet LNG has proposed a petrochemicals project including Propane and Ethane storage and handling facilities.

The project would bring revenue generation from sale of Poly-Propylene, Propylene, Propane, Hydrogen and Ethane, according to the company.

The project would also benefit from utilising ‘ColdEnergy’ of Petronet LNG’s existing Dahej LNG terminal making this project energy-efficient.

Petronet LNG shares were trading 1.86% higher at ₹199.80 apiece on BSE at 10.05 AM.

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(Edited by : Asmita Pant)

First Published:Nov 6, 2023 1:41 PM IST