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PLNG: Capacity expansion to drive growth

Jan 15, 2013

Petronet LNG has results for second quarter of the financial year 2011-2012 (FY12). The company has reported a 33.1% year on year (YoY) increase in the topline along with 7.8% YoY growth in the bottomline for the quarter.

Performance summary
  • Revenues soared 33.1% YoY during the quarter. For the first nine months (9mFY13), sales were up 40.9% YoY.
  • Operating profits were up 5.1% YoY during the quarter (with margins at 6.3% as compared to 7.9% in the 3QFY12). For the first nine months year, the operating profits were up 8.2% YoY. The operating margins for the first nine months year stood at 6.5% versus 8.5% in 9mFY12.
  • Net profits for the quarter were up 7.8% YoY with net profit margins at 3.8% versus 4.7% last year .For the first nine months, the bottomline was up 11.3% YoY and net profit margins stood at 3.9% as compared to 5.0% in 9mFY12.

Standalone financial snapshot
(Rs m)  3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
Sales  63,303 84,228 33.1% 163,204 230,018 40.9%
Expenditure  58,270 78,939 35.5% 149,307 214,974 44.0%
Operating profit (EBDITA)  5,032 5,289 5.1% 13,897 15,044 8.2%
EBDITA margin (%)  7.9% 6.3%   8.5% 6.5%  
Other income  164 149 -9.1% 627.6 662.9 5.6%
Total revenues  63,467 84,377 32.9% 163,832 230,681 40.8%
Interest (net)  345 291 -15.5% 1266.9 937.1 -26.0%
Depreciation  463 472 1.9% 1383.8 1398.1 1.0%
Profit before tax  4,389 4,675 6.5% 11,874 13,371 12.6%
Pretax margin (%)  6.9% 5.5%   7.2% 5.8%  
Tax 1,435 1,490 3.8% 3,750 4,330 15.5%
Profit after tax/(loss)  2,954 3,185 7.8% 8,124 9,041 11.3%
Net profit margin  4.7% 3.8%   5.0% 3.9%  
No. of shares (m)          750  
Diluted earnings per share (Rs)*          15.3  
Price to earnings ratio (x)**          10.7  
(*On a trailing 12-month basis)

What has driven performance in 3QFY13?
  • The company reported a 33.1% YoY growth in revenues during the quarter. The growth was both on account of increase in gas sales volumes and better realizations. For the quarter, the Dahej terminal operated at 110% of the nameplate capacity. The total gas volumes for the quarter stood at around 140.6 trillion British thermal units (tBtus) versus 135 tBtus in the previous quarter (2QFY13). Out of this, long term volumes stood at 97 tBtu as compared to 90 tBtu last quarter.

  • The operating profits were up by 5.1% YoY during the quarter. The operating margins for the quarter stood at 6.3% versus 7.9% in 3QFY12 and 6.95 in 2QFY13.

    Cost break-up...
    (Rs m)  3QFY12 3QFY13 Change 9mFY12 9mFY13 Change
    Cost of materials consumed 57,006 78,089 37.0% 146,474 213,064 45.5%
    as a % of sales 90.1% 92.7%   89.7% 92.6%  
    Staff expenses 64 76 18.9% 190 233 23.0%
    as a % of sales 0.1% 0.1%   0.1% 0.1%  
    Forex fluctuation 625 73 -88.4% 1120.1 -371.5 NM
    as a % of sales 1.0% 0.1%   0.7% -0.2%  
    Other expenses 575 701 22.0% 1522.9 2048.6 34.5%
    as a % of sales 0.9% 0.8%   0.9% 0.9%  

  • The net profits for the quarter registered 7.8% YoY growth with margins at 3.8% as compared to 4.7% in 3QFY12. While the depreciation expenses during the quarter were up by 1.9% YoY, the interest expenses declined by 15% YoY.

What to expect?
The company has been consistently operating above its nameplate capacity. Considering the gas demand supply gap in the country, we expect the volumes to remain strong. The volumes will increase further once Kochi terminal becomes operational which is likely to happen from April 2013. As per the management, initially, the volumes at Kochi terminal will remain low and are likely to reach at least 40% of capacity by FY15-16.

Regarding Dahej terminal, the management has said that the second jetty will be operational by 2013-14.

As per the management guidance, the company's debt is likely to be around 30 bn - 31 bn in FY14.

Petronet has signed take or pay contract with Gas Authority of India Ltd for 2.5 mmtpa (million metric tonnes per annum) and Gujarat State Petroleum Corporation Ltd for 2.25 mmtpa. For this, it will also get an advance payment free of interest costs that will help it in carrying out its capex plan. Further, the company has got board approval for its Gangavaram project in Andhra Pradesh and aims to complete it by 2016. Of the total capex of Rs 42 bn on Kochi terminal, the company has already incurred Rs 36 bn and will be spending around Rs 6 bn this year. Apart from that, a significant investment will be done on second jetty at Dahej terminal in 2013 and 2014.

The realizations will improve for the coming quarter as prices will increase in the January month (as per the price escalation clause). The company doesn't foresee any competitive risk from Dabhol or from increase of capacity at Hazira.

The stock is currently trading at a PE of 10.7 times its trailing 12 months earnings. Our target price of Rs 240 (at the end of FY15) offers 19% of average returns. We suggest our investors to Buy the stock.

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