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Petronet LNG: Driven by lower LNG costs - Views on News from Equitymaster

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Petronet LNG: Driven by lower LNG costs
Aug 3, 2010

Petronet LNG has announced its 1QFY11 results. The company has reported a 3% YoY decline and 8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 3% YoY during 1QFY11 on the back of lower volumes. Volumes decline by 4% during the period.
  • EBITDA margins expand to 9.8%, from 7% in 1QFY10 on the back of lower raw material (LNG) costs (as a percentage of sales).
  • Other income declines by 56% during 1QFY11.
  • Bottomline grows by 8% YoY due to higher operating margins, despite higher interest and depreciation.


Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 26,124 25,260 -3.3%
Expenditure 24,306 22,782 -6.3%
Operating profit (EBDITA) 1,818 2,477 36.3%
EBDITA margin (%) 7.0% 9.8%  
Other income 288 126 -56.3%
Interest 283 498 75.7%
Depreciation 256 461 80.2%
Profit before tax 1,567 1,644 4.9%
Tax 534 530 -0.7%
Profit after tax/(loss) 1,033 1,114 7.8%
Net profit margin (%) 4.0% 4.4%  
No. of shares (m)   750.0  
Diluted earnings per share (Rs)*   5.5  
Price to earnings ratio (x)*   17.7  
*On trailing twelve months earnings

What has driven the performance in 1QFY11?
  • Petronet LNG clocked sales volume of 95 trillion British thermal units (tBtu) in 1QFY11, as compared to 99 tBtus in 1QFY10. Volumes include regasification volumes of 6 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 expanded by 2.8% on the back of lower raw materials costs, which fell by 3.5% YoY (as a % of sales) during 1QFY11.

    Cost break-up
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 24,020 22,333 -7.0%
    % sales 91.9% 88.4%  
    Staff cost 41 73 79.4%
    % sales 0.2% 0.3%  
    Other expenditure 245 376 53.3%
    % sales 0.9% 1.5%  
    Total cost 24,306 22,782 -6.3%
    % sales 93.0% 90.2%  

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

What to expect?
Going forward, the management expects to achieve volumes growth. Petronet has 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 97, the stock is trading at a multiple of 17.7 times its trailing 12 months 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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