Petronet LNG: A weak quarter - Views on News from Equitymaster

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Petronet LNG: A weak quarter

Aug 7, 2014 | Updated on Oct 30, 2019

Petronet LNG has announced results for first quarter of the financial year 2014-2015 (1QFY15). The company has reported a 20.3% year on year (YoY) increase in the topline while net profits for the quarter declined by 30.5% YoY.

Performance summary
  • Revenues grew by 20.3% YoY during the quarter.
  • The operating profits for the quarter declined by 10.1% YoY while margins for the quarter stood at 3.5%, down 1.2% YoY.
  • The net profits for the quarter declined 31% YoY with net profit margins at 1.5%, down 1.1% YoY.

Standalone performance summary
(Rs m) 1QFY14 1QFY15 Change
Sales 84,442 101,608 20.3%
Expenditure 80,464 98,031 21.8%
Operating profit (EBDITA) 3,978 3,578 -10.1%
EBDITA margin (%) 4.7% 3.5% -1.2%
Other income 152 353 131.8%
Interest (net) 240 784 226.5%
Depreciation 467 771 65.0%
Profit before tax 3,423 2,376 -30.6%
Pretax margin (%) 4.1% 2.3% -1.7%
Tax 1,170 810 -30.8%
Profit after tax/(loss) 2,253 1,566 -30.5%
Net profit margin 2.7% 1.5% -1.1%
No. of shares (m)     750
Diluted earnings per share (Rs)*     8.6
TTM PE*     19.6
On the basis of trailing 12 months earnings

What has driven performance in 1QFY15?
  • Revenues grew by 20.3% YoY during the quarter. This was mainly due to higher LNG prices (linked with crude oil prices), rupee depreciation and change in mix between long term volumes, short term volumes and tolling volumes. The company trading margins were poor during the quarter. While Dahej terminal operated at 109% capacity, the capacity utilization for Kochi terminal stands at just 1%. The company has successfully commissioned the second Jetty at Dahej in April 2014. The overall volumes during the quarter stood at 138.7 TBTU, up by around 7% YoY.

  • The operating profit margins for the quarter declined 1.2% YoY. This was mainly due to lower trading margins (due to change in the mix of volumes) that offset higher volumes at Dahej terminal and lower capacity utilization at Kochi terminal.

    Cost breakup
    (Rs m) 1QFY14 1QFY15 Change
    Cost of materials consumed 79,633 96,995 21.8%
    as a % of sales 94.3% 95.5%  
    Employee expenses 86 122 42.1%
    as a % of sales 0.1% 0.1%  
    Other expenses 745 913 22.6%
    as a % of sales 0.9% 0.9%  
    Total expenses 80,464 98,031 21.8%
    as a % of sales 95.3% 96.5%  

  • Net profits for the quarter declined by 30.5% YoY with net profit margins at 1.5% versus 2.7% in 1QFY14. This was mainly due to weak operating performance and increase in interest and depreciation expenses respectively (up 227% and 65% respectively) because of the Kochi terminal. However, this was offset to some extent by increase in other income by 132% YoY. It is important to note here that the company has adopted new rates of depreciation with effect from 1st April 2014. The same has lowered depreciation expense by around Rs 294 m in the current quarter.
What to expect?
While the capacity utilization for the company has improved in this quarter, higher volumes were offset by weaker margins on spot LNG. One of the major concerns for the company is lack of clarity on ramp up in the volumes at Kochi terminal as pipeline work remains stalled. High depreciation costs and interest costs associated with Kochi terminal have also lowered the returns on capital. The management has already commissioned second jetty at Dahej and has received Government approval for Gangavaram terminal. The expansion in Dahej terminal by 5 MT is likely to be done by 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. The Kochi terminal is incurring losses at the operating level.

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. However, subscribers must note that in the near term, triggers for the company are limited. In the year till date, the stock price of Petronet LNG has gone up by 35%. At the current price, the stock is trading at around 20 times its trailing twelve months earning which we believe is expensive for the company , especially keeping in mind the concerns mentioned above. As such, we believe subscribers should not buy the stock at current prices. We are in the process of updating our estimates for the company and will get back with the revised target price very soon.

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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Jun 24, 2021 10:35 AM


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