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Petronet LNG: Its spot cargoes again! - Views on News from Equitymaster
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Petronet LNG: Its spot cargoes again!
Jul 17, 2007

Performance summary
  • Net sales grew by 52.2% YOY on the back of 25% volume growth and better realisations.

  • A relatively lower expenditure growth of 51.6% YOY resulted in a slightly improved EBITDA margin of 13.2% as against 12.8% last corresponding quarter.

  • Other income increased by 119%, while net interest declined by 3.6%, thus positively contributing to the bottomline which grew by 92.6%

Financial snapshot…
(Rs m) 1QFY07 1QFY08 Change
Net sales 10,191 15,510 52.2%
Expenditure 8,882 13,461 51.6%
Operating profit (EBDITA) 1,309 2,049 56.6%
EBDITA margin (%) 12.8% 13.2%  
Other income 53 116 119.0%
Interest (net) 266 257 -3.6%
Depreciation 254 254 0.0%
Profit before tax 841 1,654 96.7%
Tax 280 574 104.7%
Profit after tax/(loss) 561 1,080 92.6%
Net profit margin (%) 5.5% 7.0%  
No. of shares (m) 750.0 750.0  
Diluted earnings per share (Rs)* 3.0 5.8  
Price to earnings ratio (x)**   12.4  
(* annualised, ** on trailing twelve months earnings)

What is the company’s business?
Petronet LNG Limited (PLL) is promoted by four Navratna PSUs, namely BPCL, ONGC, GAIL and IOC, each holding 12.5% stake each. PLL is engaged in the business of regasification of LNG. It has its regasification terminals at Dahej with a capacity of 5 million metric tonnes per annum (MMTPA). It is also building a regasification terminal with a capacity of 2.5 MMTPA at Kochi. Petronet has also signed a 50: 50 joint venture agreement with Adani group for setting up a Solid Cargo Port at Dahej SEZ area. The solid cargo port would have facilities to import/export bulk products like coal, steel, and fertilizer.

What has driven the performance in 1QFY08?
Volumes growth: Topline growth of 52% YoY during the quarter was driven both by improved volumes as well as realisations. It should be remembered that since 3QFY07, the company has been resorting to processing spot cargoes and this has been given its volumes a boost. The company processed 78.6 trillion BTUs as against 63.2 trillion BTUs in the corresponding quarter of last year, thus registering a volume growth of 24.5% YoY.

Going forward, volumes will see a bigger jump as the company has recently signed an agreement with RasGas of Qatar for supply of an additional 1.5 MT, deliveries of which will be commenced from this month.

Slightly improved margins: Given the utility nature of the company, margins were more or less stable. Re-gasification charges are more or less fixed, thereby leading to stability in margins. Consumption of raw material increased as a percentage of sales by 100 basis points. The economies of scale can be gauged from the fact that other expenditure declined by as much as 18% during the quarter.

Cost break up…
(Rs m) 1QFY07 1QFY08 Change
Raw materials 8,539 13,154 54.0%
% sales 83.8% 84.8%  
Staff cost 37 57 54.1%
% sales 0.4% 0.4%  
Other expenditure 306 250 -18.4%
% sales 3.0% 1.6%  
Total cost 8,882 13,461 51.6%
% sales 87.2% 86.8%  

Other income jumps: Other income increased by 119% YoY during the quarter. Interest expenditure declined marginally by 3.6% YoY, while depreciation was stable. Thus, increased operating income coupled with increase in other income drove the bottomline.

What to expect?
The stock currently trades at Rs 61, implying a price to earnings multiple of 12.4 times its trailing twelve months earnings. Going forward, we expect volumes growth to continue, especially in light of the recent deal with RasGas. Margins however, are likely to come under pressure, as new contracts are likely to be signed at higher prices. Although the company has done well to increase its capacity through de-bottlenecking, the real jump in profits is likely to come once the planned incremental capacity comes onstream. Hence, due to lack of significant near term growth prospects, we continue to maintain our ‘Sell’ view on the stock.

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