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Petronet LNG: Expansion hurts bottomline - Views on News from Equitymaster

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Petronet LNG: Expansion hurts bottomline

Apr 28, 2010

Petronet LNG has announced its FY10 results. The company has reported a 26.3% YoY growth and 22% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 10% YoY during 4QFY10 on the back of lower realisations. Volumes grow by 11.3% during the period.
  • EBITDA margins decline to 8.5%, from 12.9% in 4QFY09 on the back of higher raw material costs (as a percentage of sales).
  • Other income grows by 67% during 4QFY10.
  • Bottomline registers a fall of 53% YoY due to lower topline and margins and higher interest and depreciation.
  • For FY10, topline registers a 26% YoY growth while bottomline declines by 22%.
  • Declares a dividend of Rs 1.75 per share.

Standalone financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 26,549 23,855 -10.1% 84,287 106,491 26.3%
Expenditure 23,132 21,831 -5.6% 74,977 98,461 31.3%
Operating profit (EBDITA) 3,417 2,024 -40.8% 9,310 8,030 -13.7%
EBDITA margin (%) 12.9% 8.5%   11.0% 7.5%  
Other income 199 332 66.6% 765 978 27.9%
Interest 265 511 92.5% 1,012 1,839 81.7%
Depreciation 253 458 81.2% 1,322 1,174 -11.2%
Profit before tax 3,098 1,386 -55.2% 7,740 5,995 -22.5%
Tax 1,055 414 -60.8% 2,556 1,950 -23.7%
Profit after tax/(loss) 2,044 973 -52.4% 5,184 4,045 -22.0%
Net profit margin (%) 7.7% 4.1%   6.2% 3.8%  
No. of shares (m)         750.0  
Diluted earnings per share (Rs)         5.4  
Price to earnings ratio (x)         14.7  

What has driven the performance in 4QFY10?
  • Petronet LNG clocked sales volume of 92 trillion British thermal units (tBtu) in 4QFY10, as compared to 82 tBtus in 4QFY09. Volumes include regasification volumes of 1 tBtu during the quarter.

  • 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 contracted by 4.4% on the back of higher raw materials costs, which grew by 4.9% YoY (as a % of sales) during 4QFY10.

    Cost break-up
    (Rs m) 4QFY09 4QFY10 Change
    Raw materials 22,533 21,413 -5.0%
    % sales 84.9% 89.8%  
    Staff cost 84 81 -3.5%
    % sales 0.3% 0.3%  
    Other expenditure 514 339 -34.2%
    % sales 1.9% 1.4%  
    Total cost 23,132 21,833 -5.6%
    % sales 87.1% 91.5%  

  • During the quarter, the company incurred higher depreciation and interest charges due to the commissioning of expansion facilities in July 2009.

  • Petronet LNG has taken delivery of a third Vessel 'Aseem' in November 2009. It is meant for transporting additional 2.5 m tonnes per annum (mtpa) of LNG from Qatar and the first cargo was received on 3rd January, 2010. As a result, the total long term contracted quantity has gone up to 7.5 mtpa.

What to expect?
Going forward, the management expects to achieve volume growth. Petronet recently doubled the capacity of its Dahej terminal to 10 mtpa. It is building another 2.5 m tonnes a year plant at Kochi, expected to be commissioned in FY12. The company gets 7.5 mtpa from RasGas under a long-term LNG deal. It has also signed for 1.5 mtpa of supply from Exxon Mobilís share of Australia's Gorgon project.

At the current price of Rs 80, the stock is trading at a multiple of 14.7 times its FY10 earnings. We believe the implications of the impending shift in the supply structure of gas in India will be negative for the company, and as such the stock is expensive at the current juncture.

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