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Petronet LNG: Higher volumes boost performance - Views on News from Equitymaster
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Petronet LNG: Higher volumes boost performance
Jan 30, 2012

Petronet LNG has announced results for the third quarter of financial year 2011-2012 (3QFY12). The company has reported a whopping 73% year on year (YoY) increase in the bottomline along with a topline growth of 75% YoY. Here is our analysis of the results.

Performance summary
  • Revenues soared 74.5% YoY during the quarter. For the first nine months, the topline was up 77.2% YoY.
  • Operating profit growth registered a growth of 45.6% YoY during the quarter with margins at 7.9 % (as compared to 9.5% in the 3QFY11). For the first nine months, the operating profit was up 60.7% YoY, with margins coming at 8.5% (versus 9.4% last year).
  • Net profits for the quarter were up 72.9% with net profit margins at 4.7%, same as in the corresponding quarter last year. For the first nine months, the bottomline registered a whopping increase of 130% YoY, with margins coming at 5.0% ( versus 3.8% last year).
  • The company has repaid a debt of Rs 500 crore (at the cost of 11.5%). As of now, the average finance cost (overall on domestic and foreign debt) stands at 9.2%.

Standalone performance summary
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 36,276 63,303 74.5% 92,113 163,204 77.2%
Expenditure 32,820 58,270 77.5% 83,464 149,307 78.9%
Operating profit (EBDITA) 3,456 5,032 45.6% 8,650 13,897 60.7%
EBDITA margin (%) 9.5% 7.9%   9.4% 8.5%  
Other income 54 164 203.0% 366 628 71.5%
Interest (net) 507 345 -32.0% 1,500 1,267 -15.5%
Depreciation 465 463 -0.4% 1,392 1,384 -0.6%
Profit before tax 2,538 4,389 72.9% 6,123 11,874 93.9%
Pretax margin (%) 7.0% 6.9%   6.6% 7.3%  
Tax 830 1,435 72.9% 2,595 3,750 44.5%
Profit after tax/(loss) 1,708 2,954 72.9% 3,528 8,124 130.3%
Net profit margin 4.7% 4.7%   3.8% 5.0%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         13.6  
Price to earnings ratio (x)**         12.1  
* On a trailing 12-months basis

What has driven performance in 3QFY12?
  • The increase in the topline was on account of increase in volumes and average prices. Petronetís Dahej terminal with a nameplate capacity of 10 million metric tonnes per annum operated at 115% capacity utilizations and regasification volumes for the quarter came at 145 trillion British thermal unit) TBTUs, up 21% YoY, up 6% quarter on quarter .Out of 145 TBTUs, 25 TBTUs were from short term/spot basis cargoes.
    Cost breakup
    Rs million 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials 32,389 57,007 76.0% 82,269 146,474 78.0%
    as a % of sales 89.3% 90.1%   89.3% 89.7%  
    Staff Cost 57 64 11.8% 184 190 3.3%
    as a % of sales 0.2% 0.1%   0.2% 0.1%  
    Other expenditure 374 1,200 221.0% 1,011 2,643 161.5%
    as a % of sales 1.0% 1.9%   1.1% 1.6%  
    Total expenditure 32,820 58,271 77.5% 83,464 149,307 78.9%
    as a % of sales 90.5% 92.1%   90.6% 91.5%  

  • The operating profits of the company were up 45.6% YoY for the quarter on account of the increase in the volumes and resultant efficiency gains and higher marketing margins. However, the margins contracted by 1.6% (YoY) on account of increase in the cost of raw materials (0.9% YoY as a % of sales).

  • The net profits for the quarter surged by 73%, much higher than 45.6% growth at operating income level. The increase was mainly on account of increase in other income (up 203%) and a 32% decline in interest charges (as the company prepaid a debt worth Rs 500 crore).The margins for the quarter came at 4.7%, in line with 3QFY11.

What to expect?
On account of shortage in domestic gas supplies and rising demand of natural gas, we expect the volumes to remain robust. The softening in spot prices will help the volumes further. The management has also suggested that capex utilization (for Dahej terminal) of 110% in the future is sustainable on an annual basis. The company seems to be in a sweet spot to make most of the rising imported gas demand in the country as its Kochi terminal (estimated cost of Rs 37.5 bn) is almost 94% complete and expected to commence operations by the month of October in the current fiscal year. The company in a recent board meeting has also decided upon the location of 5mmtpa terminal as Gangavaram in Andhra Pradesh, and is now trying to come up with a detailed financial report on the same by April 2012.

Regarding marketing margins, the management believes that company will not be subjected to PNGRB (Petroleum and Natural Gas Regulatory Board) regulated margins as it deals in imported rather than domestic gas. However, the matter overall is still unclear. The stock is currently trading at PE ratio of 12.1 (on the basis of trailing 12 months) which we believe is not expensive considering the growth potential of the company. As the domestic gas supplies are on a decline, the demand for LNG is expected to remain high which is a strong positive for the company. We expect increasing share of spot cargoes to lend further support to margins.

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