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Petronet LNG: Profits down 57%
Jan 31, 2014

Petronet LNG has announced results for third quarter of the financial year 2013-2014 (3QFY14). The company has reported a 11% year on year (YoY) increase in the topline while net profits for the quarter declined by 57% YoY.

Performance summary
  • Revenues grew by 11% YoY during the quarter. For the nine months, the revenues were up by 18.8% YoY..
  • Operating profits declined by 33.8 % YoY during the quarter (with margins at 3.7% as compared to 6.3% in the 3QFY13). For the nine months, the operating profits declined by 26% YoY with margins at 4.1% versus 6.5% in 9mFY13.
  • Net profits for the quarter declined by 57% YoY with net profit margins at 1.4% versus 3.8% in 3QFY13. For the nine months, the net profits declined 40% YoY, with margins at 2.0% as compared to 3.9% in 9mFY13

Financial snapshot
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Sales 84,228 93,821 11.4% 230,018 273,198 18.8%
Expenditure 78,939 90,322 14.4% 214,974 262,081 21.9%
Operating profit (EBDITA) 5,289 3,499 -33.8% 15,044 11,117 -26.1%
EBDITA margin (%) 6.3% 3.7%   6.5% 4.1%  
Other income 149 216 44.9% 662.9 529.9 -20.1%
Total revenues 84,377 94,037 11.4% 230,681 273,728 18.7%
Interest (net) 291 783 168.7% 937.1 1409.5 50.4%
Depreciation 472 1017 115.7% 1398.1 2,081 48.8%
Profit before tax 4675 1916 -59.0% 13372 8156 -39.0%
Pretax margin (%) 5.6% 2.0%   5.8% 3.0%  
Tax 1,490 560 -62.4% 4330 2730 -37.0%
Profit after tax/(loss) 3,185 1,356 -57.4% 9,042 5,426 -40.0%
Net profit margin 3.8% 1.4%   3.9% 2.0%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         10.5  
          11  
*On trailing 12 months basis

What has driven performance in 3QFY14?
  • The revenues for the quarter grew by 11% YoY, despite the decline in the volumes, mainly because of the high gas prices and rupee depreciation. The LNG volumes for the quarter declined to 124 TBtus (120 TBtu at Dahej and rest at Kochi) and as compared to 140.6 TBtus in the corresponding quarter last year. The company witnessed a decline in the spot volumes and trading margins due to the weak demand. The Dahej terminal operated at just around 95% of its nameplate capacity as compared to around 110% capacity utilization in the corresponding quarter last year.

  • The operating profits for the quarter declined significantly due to lower capacity utilization and hence adverse impact on operational efficiencies. The gas cost increased from 92.9% in 3QFY13 to 95% (both as a % of sales) during the quarter. The decline in the spot volumes also led to reduced profitability. Besides, an increase in other expenses led to a contraction in the operating profit margins, from 6.3% in 3QFY13 to 3.7% in the current quarter.

  • The net profits for the quarter declined by a whopping 57.4% YoY. Apart from lower volumes, the company witnessed a significant increase in the depreciation and interest expenses (168.7% YoY and 115.7% YoY respectively). This was mainly on account of capitalization of the Kochi terminal which is operating at just 5% of the nameplate capacity. The decline in the bottomline was offset to some extent due to around 44.9% YoY increase in the other income.

    Cost breakup
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Cost of materials consumed 78,219 89,171 14.0% 212,776 259,151 21.8%
    as a % of sales 92.9% 95.0%   92.5% 94.9%  
    Staff Cost 76 106 38.8% 233 271 16.3%
    as a % of sales 0.1% 0.1%   0.1% 0.1%  
    Other expenditure 644 1,045 62.3% 1,965 2,660 35.4%
    as a % of sales 0.8% 1.1%   0.9% 1.0%  
    Total expenditure 78,939 90,322 14.4% 214,974 262,081 21.9%
    as a % of sales 93.7% 96.3%   93.5% 95.9%  

What to expect?

The company is facing the challenge of slowdown in the volumes in a weak economic environment and on account of increase in the LNG prices. In the near term, the earnings are likely to remain muted because of low capacity utilization at Kochi terminal (due to the non completion of Kochi -Bangalore/Mangalore pipeline by GAIL) and higher depreciation and interest expenses.

That said, in the long term, we are positive about the growth potential and prospects of the company India remains a gas deficit country due to a huge gap in the gas supply and demand and hence, the demand of LNG in the long term is likely to go up. Also, as gas pricing reform (increase in domestic gas price) gets implemented; we believe it will increase the acceptability of the imported gas. This places Petronet LNG in a sweet spot as the company is leading importer and regasifier of liquefied natural gas/LNG in the country and is planning to double its capacity in next 3-4 years. At the current price, the stock is trading at 11 times its trailing twelve months earnings. We reiterate 'Buy' on the stock from a long term perspective.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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