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Petronet LNG: Kochi terminal remains a drag - Views on News from Equitymaster

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Petronet LNG: Kochi terminal remains a drag

Apr 30, 2014 | Updated on May 2, 2014

Petronet LNG has announced results for fourth quarter of the financial year 2013-2014 (4QFY14) and FY14. The company has reported a 23.2% year on year (YoY) increase in the topline while net profits for the quarter declined by 31% YoY.

Performance summary
  • Revenues grew by 23.2% YoY during the quarter. For FY14, the revenues were up by 20.0% YoY. The capacity utilization at Dahej terminal stood at 96%.
  • Operating profits for the quarter declined by 10.6 % YoY during the quarter (with margins at 3.7% as compared to 5.1% in the 4QFY13). For FY14, the operating profits declined by 23% YoY with margins at 4.0% versus 6.2% in FY13.
  • Net profits for the quarter declined by 31% YoY with net profit margins at 1.6% versus 2.9% in 4QFY13 on account of high depreciation expenses and interest expenses, mainly due to lower capacity utilization at Kochi terminal. For FY14, the net profits declined 38% YoY, with margins at 1.9% as compared to 3.7% in FY13.
  • The Board of Directors of the Company has recommended dividend of Rs. 2.0 per share for the year ended March 31, 2014.

(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 84,656 104,278 23.2% 314,674 377,476 20.0%
Expenditure 80,332 100,410 25.0% 295,309 362,491 22.8%
Operating profit (EBDITA) 4,324 3,868 -10.6% 19,366 14,985 -22.6%
EBDITA margin (%) 5.1% 3.7%   6.2% 4.0%  
Other income 222 308 38.4% 887 838 -5.6%
Interest (net) 247 786 218.3% 1,184 2,196 85.4%
Depreciation 468 1,000 113.7% 1,866 3,081 65.1%
Profit before tax 3,831 2,389 -37.6% 17,203 10,545 -38.7%
Pretax margin (%) 4.5% 2.3%   5.5% 2.8%  
Tax 1,380 696 -49.6% 5,710 3,426 -40.0%
Profit after tax/(loss) 2,451 1,693 -30.9% 11,493 7,119 -38.1%
Net profit margin 2.9% 1.6%   3.7% 1.9%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         9.5  
*On trailing 12 months basis

What has driven performance during 4QFY14
  • Despite a decline in the gas volumes , the revenues grew by 23% YoY mainly due to higher LNG prices and rupee depreciation. The capacity utilization at Dahej terminal stood relatively lower at 96% . The Kochi terminal also operated very low volumes , even lower than the 5% capacity utilization levels in the past.

    Cost breakup
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Cost of materials consumed 79,425 99,344 25.1% 292,119 358,495 22.7%
    as a % of sales 93.8% 95.3%   92.8% 95.0%  
    Employee expenses 137 195 42.5% 370 466 26.0%
    as a % of sales 0.2% 0.2%   0.1% 0.1%  
    Other expenses 770 871 13.0% 2,819 3,530 25.2%
    as a % of sales 0.9% 0.8%   0.9% 0.9%  
    Total expenses 80,332 100,410 25.0% 295,309 362,491 22.8%
    as a % of sales 94.9% 96.3%   93.8% 96.0%  

  • The operating profit for the quarter declined due to lower operational efficiencies because of the lower volumes. However, this was offset to some extent by higher margins earned on spot cargoes.

  • The net profits for the quarter were down 31% YoY. Apart from lower volumes at Dahej terminal, the increase in interest expenses and depreciation expenses related to Kochi terminal dragged the bottomline, offsetting the benefits of lower tax outgo and higher other income
What to expect?
High LNG prices and slowdown in the economy have impacted the gas demand adversely. Further, there is no clarity on ramp up in the volumes at Kochi terminal as pipeline work remains stalled.

Going forward, the commissioning of second Jetty will increase the handling capacity of the Dahej terminal. As per the management, the expansion of Dahej terminal to 15 MT is on track and is likely to be completed by the end of 2016.

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 PLNG in the long term is likely to go up. Also, if 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 9.5 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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