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Petronet LNG: Net profits remain flat - Views on News from Equitymaster
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Petronet LNG: Net profits remain flat
Apr 30, 2013

Petronet LNG has announced results for fourth quarter of the financial year 2012-2013 (4QFY13). The company has reported a 33% year on year (YoY) increase in the topline while net profits for the quarter remained flat.

Performance summary
  • Revenues soared 33% YoY during the quarter. For full year (FY13), sales were up 39% YoY.
  • Operating profits were up 2.7% YoY during the quarter (with margins at 5.1% as compared to 6.6% in the 4QFY12). For FY13, the operating profits were up 6.0% YoY. The operating margins for the full year stood at 6.2% versus 8.1% in FY12.
  • Net profits for the quarter were flat as compared to 4QFY12. The net profit margins for the quarter stood at 2.9% versus 3.8% in 4QFY12 .For FY13, the bottomline was up 8.7% YoY and net profit margins stood at 3.7% as compared to 4.7% in FY12.
  • The company said that its board has recommended a dividend of 25% or Rs.2.50 per equity share of Rs.10 each for the fiscal year 2013.

Standalone financial snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY 13 Change
Sales 63,754 84,656 32.8% 226,959 314,674 38.6%
Expenditure 59,524 80,312 34.9% 208,666 295,287 41.5%
Operating profit (EBDITA) 4,230 4,344 2.7% 18,292 19,388 6.0%
EBDITA margin (%) 6.6% 5.1%   8.1% 6.2%  
Other income 221 203 -8.4% 849 865 2.0%
Total revenues 63,975 84,859 32.6% 227,807 315,540 38.5%
Interest (net) 342 247 -27.8% 1,774 1,184 -33.2%
Depreciation 458 468 2.2% 1,842 1,866 1.3%
Profit before tax 3,651 3,831 4.9% 15,525 17,203 10.8%
Pretax margin (%) 5.7% 4.5%   6.8% 5.5%  
Tax 1,200 1,380 15.0% 4,950 5,710 15.4%
Profit after tax/(loss) 2,451 2,451 0.0% 10,575 11,493 8.7%
Net profit margin 3.8% 2.9%   4.7% 3.7%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         15.3  
Price to earnings ratio (x)**         9.1  
*On the basis of trailing 12 months

What has driven performance in 4QFY13?
  • During the quarter, the growth in the net sales was mainly on account of higher realizations on gas. The volumes for the company stood at 122 TBTU (trillion British Thermal units) during the quarter as compared to 135 TBTU in 4QFY12 and 140 TBTU in 3QFY13. The decline in the volumes was mainly on account of decline in tolling service cargoes that company does for major offtakers and seasonal maintenance in customer plants. The demand for LNG was adversely impacted by higher LNG prices. For full year, the company operated Dahej plant at 103%, down from 107% last year. The volumes for FY13 stood at around 524 TBTUs, as compared to 548 TBTUs in FY12. The sales for FY13 witnessed 38.6% YoY growth.

  • The operating margins for the quarter declined to 5.1% as compared to 6.6% in 4QFY12.This were mainly due to lower volumes (demand impacted by increase in LNG prices). For full year, the operating margins stood at 6.2%, as compared to 8.1% in FY12. Despite better realizations, the margins were down due to decline in the gas volumes.
    Cost break-up...
    (Rs m)  4QFY12 4QFY13 Change FY12 FY13 Change
    Cost of materials consumed 59,393 79,986 34.7% 205,867 293,050 42.3%
    as a % of sales 93.2% 94.5%   90.7% 93.1%  
    Staff expenses 108 137 26.8% 298 370 24.4%
    as a % of sales 0.2% 0.2%   0.1% 0.1%  
    Forex fluctuation -575 -580 0.9% 380 -952 na
    as a % of sales -0.9% -0.7%   0.2% 0.2%  
    Other expenses 599 770 28.7% 2,122 2,819 32.9%
    as a % of sales 0.9% 0.9%   0.9% 0.9%  
    Total expenses 59,524 80,312 34.9% 208,666 295,287 41.5%
    as a % of sales 93.4% 94.9%   91.9% 93.8%  

  • The net profits for the quarter were almost flat with margins at 2.9% as compared to 3.8% in 4QFY12.The effective tax rate for the quarter stood at 36%, as compared to 32.9% in 4QFY12. The interest costs for the quarter declined by 28% YoY while depreciation expenses were up 2.2%. For FY13, the bottomline was up 8.7% YoY and net profit margins stood at 3.7% as compared to 4.7% in FY12.

What to expect?
With softening in LNG prices, the volumes may improve in the coming quarters. However, on an annual basis, the management has suggested that the volumes will remain flat. The Kochi terminal is likely to start operations from July 2013. As per the management, the initial volumes at Kochi terminal are likely to remain very low (less than 10% of the capacity) on account of limited pipeline network and regasification charges for Kochi terminal would be at around Rs 62 per million metric british thermal units (mmbtu) with 5% escalation clause. The additional jetty for Dahej terminal is likely to be operational by March 2014.

At current prices of Rs 139, the stock is trading at a price to earnings multiple of 9.1 times its trailing twelve months earnings. We believe that the current prices factor in the absence of short term positive triggers. India is a gas deficit country and demand and supply gap is only expected to go up. This places Petronet LNG in a sweet spot as the company is leading importer and regasifier of liquefied natural gas/LNG in the country. We reiterate our Buy view on the stock from a long term perspective. That said, we would recommend that subscribers read the investment concerns thoroughly before investing. Please also ensure that no stock comprises more than 5% of your portfolio.

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