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Petronet: Realisations aid growth - Views on News from Equitymaster
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Petronet: Realisations aid growth
Apr 27, 2009

Performance summary
  • Topline grows by 29% YoY during FY09 on the back of better realisations and rupee depreciation.
  • EBITDA margins decline to 11%, from 13% in FY08.
  • Other income rises by 43% during FY09.
  • Bottomline registers an increase of 9% YoY despite erosion in operating margins.
  • For 4QFY09, topline grows by 52%, while the bottomline shoots up by 70%.


Standalone financial snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 17,527 26,549 51.5% 65,553 84,287 28.6%
Expenditure 15,378 23,132 50.4% 56,892 75,274 32.3%
Operating profit (EBDITA) 2,148 3,417 59.1% 8,661 9,013 4.1%
EBDITA margin (%) 12.3% 12.9%   13.2% 10.7%  
Other income 179 199 11.3% 536 765 42.8%
Interest 250 265 6.1% 1,024 1,012 -1.1%
Depreciation 254 253 -0.2% 1,022 1,025 0.3%
Profit before tax 1,824 3,098 69.9% 7,152 7,740 8.2%
Tax 623 1,055 69.2% 2,405 2,556 6.3%
Profit after tax/(loss) 1,200 2,044 70.2% 4,747 5,184 9.2%
Net profit margin (%) 6.8% 7.7%   7.2% 6.2%  
No. of shares (m)         750.0  
Diluted earnings per share (Rs)         6.9  
Price to earnings ratio (x)         7.9  

What has driven the performance in 4QFY09?
  • Petronet LNG clocked sales volume of 82 trillion British thermal units (tBtu) in 4QFY09, higher than the 4QFY08 volumes by nearly 3 tBtu. For FY09, the company sold 321 tBtu, marginally lower than FY08 sales. It may be recalled that the sales volume was lower during 2QFY09 as one high-pressure pump was de-commissioned for major repair & maintenance work. It has since been re-commissioned.

  • The availability of domestic natural gas is expected to go up in the long term. Imported LNG is a more expensive option compared to domestic natural gas transported by pipeline. However, LNG will remain an attractive option if the timing and quantum of new domestic supplies spreads out over the next few years giving sufficient time for domestic demand to catch up. Moreover, the company plans to import only if it has back-to-back sell agreements.

  • EBITDA margins have declined by 2.5% on the back of higher raw materials costs, which increased by almost 2.6% YoY (as a % of sales) during FY09.

    Cost break-up
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Raw materials 15,019 22,533 50.0% 55,664 73,756 32.5%
    % sales 85.7% 84.9%   84.9% 87.5%  
    Staff cost 73 84 15.4% 210 196 -6.6%
    % sales 0.4% 0.3%   0.3% 0.2%  
    Other expenditure 286 514 79.9% 1,018 1,322 29.9%
    % sales 1.6% 1.9%   1.6% 1.6%  
    Total cost 15,378 23,132 50.4% 56,892 75,274 32.3%
    % sales 87.7% 87.1%   86.8% 89.3%  

  • The company proposes to set up a 1,200-mw power plant in Dahej near its LNG terminal at a capital cost of Rs 35 bn. It has inherent strategic advantages for entering the power generation business, thanks to the availability of ‘cold energy.’ LNG is transported and stored at temperature as low as minus 160 degree celsius. Hence, when it gets regasified, it brings down the temperature of water to zero. This water is then used for cooling in turbines improving their efficiency, extracting 1,200 mw out of 1,050 mw turbines. Besides the savings of 12.5% value-added tax on fuel, this will ensure that Petronet LNG’s power will be the cheapest among all gas-based projects in India.

What to expect?
Going forward, the management expects to maintain volumes growth. Petronet recently doubled the capacity of its Dahej terminal to 10 m tonnes per annum (mtpa). It is building another 2.5 m tonnes a year plant at Kochi. The company gets 5 m tonnes a year from RasGas under a long-term LNG deal, and that will be raised to 7.5 m tonnes from the last quarter of 2009. It will receive 6 additional cargoes from RasGas this year in addition to the long-term and short-term contracts. It has also been trying to procure supplies from Australia's Gorgon project and from Papua New Guinea.

At the current price of Rs 54, the stock is trading at a multiple of 7.8 times its FY09 earnings. Although we believe the implications of the impending shift in the supply structure of gas in India will be negative for the company, the price is at attractive levels despite the recent pullback.

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