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Petronet LNG: Tax reversal boosts bottomline - Views on News from Equitymaster
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Petronet LNG: Tax reversal boosts bottomline
May 6, 2015

Petronet LNG has announced results for the quarter and the year ending March 2015. The company has reported a 32% year on year (YoY) decline in the topline while net profits for the quarter grew by 77.6% YoY. Here is a brief analysis of the company’s performance.

Performance summary
  • Revenues decline by 32.0% YoY during the quarter mainly due to poor utilization levels at Dahej terminal in a weak crude and gas price environment.
  • The operating profits for the quarter declined by 42.8% YoY while margins for the quarter stood at 3.1%, down from 3.7% (YoY).
  • The net profits for the quarter grew by 77.6% YoY with net profit margins at 4.2%, versus 1.6% in 4QFY14.
  • The Board has recommended a dividend of Rs 2 per equity share, subject to the approval of members of the company at the forthcoming annual general meeting.

Standalone performance summary
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Sales 104,085 70,773 -32.0% 375,445 390,928 4.1%
Other operating income 193 844 337.9% 2,031 4,081 101.0%
Expenditure 100,410 69,403 -30.9% 362,491 380,620 5.0%
Operating profit (EBDITA) 3,868 2,214 -42.8% 14,985 14,390 -4.0%
EBDITA margin (%) 3.7% 3.1%   4.0% 3.7%  
Other income 308 576 87.2% 838 1548 84.8%
Interest (net) 786 667 -15.2% 2196 2934.9 33.7%
Depreciation 1,000 817 -18.3% 3,081 3154 2.4%
Profit before tax 2,389 1,306 -45.3% 10,545 9,849 -6.6%
Pretax margin (%) 2.3% 1.8%   2.8% 2.5%  
Tax 696        (1,701) nm 3426              1,024 -70.12%
Profit after tax/(loss) 1,693 3,007 77.6% 7,119 8,825 24.0%
Net profit margin 1.6% 4.2%   1.9% 2.3%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         11.8  
TTM PE*         14.9  
* On a trailing 12 months basis

What has driven performance in 4QFY15?
  • Revenues for the quarter declined by 32.0% YoY. This was mainly due to lower off take of long term LNG than the nominated quantities which in turn was due to considerable difference between spot and price under long term LNG contract. The spot price was lower (around US$ 7 to US$ 8 per mmbtu) than price under long term LNG contract (around US$ 13 per mmbtu). Lower price for crude also seems to have given consumers other options. Further, as per the management, towards the end of the year, volumes suffered due to shutdown of fertilizer plants.

  • For full year, the revenues were up 4.1% YoY. For the year, the company operated Dahej terminal above the nameplate capacity, at about 102% (annual volumes at 521 TBTUs at Dahej, throughput up 6%). Kochi terminal handled 12 TBTUs of LNG and served mainly two customers - BPCL and FACT.

  • On account of a poor topline performance, the operating margins for the quarter fell to 3.1%, from 3.7% in 4QFY14.

    Cost breakup
    (Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
    Cost of materials consumed 99,344 68,356 -31.2% 358,495 376,109 4.9%
    as a % of sales 95.4% 96.6%   95.5% 96.2%  
    Employee expenses 195 218 11.6% 466.2 571 22.5%
    as a % of sales 0.2% 0.3%   0.1% 0.1%  
    Other expenses 871 829 -4.8% 3,530 3,940 11.6%
    as a % of sales 0.8% 1.2%   0.9% 1.0%  
    Total expenses 100,410 69,403 -30.9% 362,491 380,620 5.0%
    as a % of sales 96.5% 98.1%   96.5% 97.4%  

  • Despite a poor operating performance, the net profit for the quarter grew by 77.6% YoY on the back of tax reversal worth Rs 1.3 bn during the quarter. This was mainly due to two issues : One, considering the situation that was prevailing in the Middle East, the company had made provisions for the war insurance which is not required and as per the act it could be reversed. Second, under 81-A, some of the tax that was under discussion with the tax authorities, has been made available and the management reversed that too.

  • The other income for the quarter grew by 87.2% YoY while interest and depreciation expense were down by 15% YoY and 18% YoY respectively.

  • For full year, the operating profit declined by 4% YoY while net profit was up 24% YoY.
What to expect?
As per the management, the expansion at Dahej terminal (from 10 MT to 15 MT) is going as per the schedule and is likely to be completed by November 2016. Further, the Board has given approval for a further extension of 2.5 MT.

As far as volume offtake is concerned, while there is a take or pay liability as per the contractual arrangement, it will get settled only at the end of the year and does not happen on a quarterly basis. As such, offtake risks and concerns on low capacity utilization remain to some extent in the long term Ras Gas contract. PLNG is working along with the other gas marketing companies on several options to avoid default by end users.

Further, the Kochi terminal remains loss making for the company. There is still no resolution regarding gas pipeline for Kochi terminal. The stock is currently trading at a price to earnings (PE) multiple of around 15 times. We believe investors should avoid the stock at this stage.

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