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Petronet LNG: A weak quarter - Views on News from Equitymaster
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Petronet LNG: A weak quarter
Oct 21, 2013

Petronet LNG has announced results for second quarter of the financial year 2013-2014 (2QFY14). The company has reported a 25.8% year on year (YoY) increase in the topline while net profits for the quarter declined by 42.3% YoY.

Performance summary
  • Revenues grew by 25.8% YoY during the quarter. For the half year, the revenues grew by 23% YoY.
  • Operating profits declined by 29.8 % YoY during the quarter (with margins at 3.8% as compared to 6.9% in the 2QFY13). For the half year, the operating profits declined by 21.9% YoY with margins at 4.2% versus 6.7% in 1HFY13.
  • Net profits for the quarter declined by 42.3% YoY with net profit margins at 1.9% versus 4.2% in 2QFY13. For the half year, the net profits declined 30.5% YoY, with margins at 2.3% as compared to 4.0% in 1HFY13.

Financial summary
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Sales 75,486 94,935 25.8% 145,790 179,377 23.0%
Expenditure 70,302 91,296 29.9% 136,035 171,760 26.3%
Operating profit (EBDITA) 5,184 3,639 -29.8% 9,755 7,617 -21.9%
EBDITA margin (%) 6.9% 3.8%   6.7% 4.2%  
Other income 248 161 -34.8% 514 314 -38.9%
Total revenues 75,734 95,096 25.6% 146,304 179,691 22.8%
Interest (net) 317 386 22.1% 646 627 -3.0%
Depreciation 467 597 27.7% 927 1,064 14.8%
Profit before tax 4,648 2,818 -39.4% 8,696 6,241 -28.2%
Pretax margin (%) 6.2% 3.0%   6.0% 3.5%  
Tax 1,500 1,000 -33.3% 2840 2170 -23.6%
Profit after tax/(loss) 3,148 1,818 -42.3% 5,856 4,071 -30.5%
Net profit margin 4.2% 1.9%   4.0% 2.3%  
No. of shares (m)         750  
Diluted earnings per share (Rs)*         12.9  
Price to earnings ratio (x)**         9.6  
**On trailing 12 months basis

What has driven performance in 2QFY14?
  • The revenues for the quarter grew by 25.8% YoY mainly on account of higher realizations. It was a disappointing quarter for Petronet LNG with capacity utilization at Dahej terminal dropping to just 90% with volumes at 123 Trillion British Thermal Units (TBTUs), down 9% YoY and 5% QoQ. Of the total, the long term volumes for the quarter stood at 98.3 TBTU. As per the management, slowdown in the economy, high gas prices and rupee depreciation were the main reasons for the muted demand. As per the management, while the long term volumes improved during the quarter, a slowdown was witnessed in the spot volumes.

  • The operating profits for the quarter declined on account of slowdown in the volumes (thus adversely impacting operating efficiencies) and because of increase in the cost of materials (as a % of sales) from 92.1% in 2QFY13 to 95.1% in 2QFY14.
    Cost summary
    Rs m 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Cost of materials consumed 69,529 90,316 29.9% 134,501 169,909 26.3%
    as a % of sales 92.1% 95.1%   92.3% 94.7%  
    Staff Cost 87 80 -7.6% 157 166 5.4%
    as a % of sales 0.1% 0.1%   0.1% 2.2%  
    Other expenditure 687 900 31.0% 1377.4 1685.3 22.4%
    as a % of sales 0.9% 0.9%   0.9% 0.9%  
    Total expenditure 70,302 91,296 29.9% 136,035 171,760 26.3%
    as a % of sales 93.1% 96.2%   93.3% 95.8%  

  • The net profits for the quarter witnessed a substantial decline of 42% YoY. Apart from the slowdown in the volumes and overall lackluster performance at the operating level, the bottomline declined due to capitalization of Kochi terminal that has commissioned operations with very low volumes. The total interest and depreciation expenses for the quarter grew by 22.1% YoY and 27.7% YoY, while other income declined by 34.8% YoY. As such, the net profit margins for the quarter slipped to 1.9% from 4.2% in the corresponding quarter last year.

What to expect?

As per the management, LNG demand is likely to go up as winter season is approaching and demand from fertilizer and power sector is likely to increase. For the next few quarters, the profits are likely to remain muted as Kochi terminal will have to work at low capacity due to delay in the pipeline connectivity. The management has suggested that the pipeline connection is likely to take a minimum of one year.

While margins are likely to remain under pressure, we are positive about the growth potential and prospects of the company in the long term. India remains a gas deficit country due to a huge gap in the gas supply and demand and hence, the demand of LNG in the long term is likely to go up. Also, as pricing reforms start getting implemented in the gas sector; 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. At the current price, the stock is trading at 9.6 times its trailing twelve months earnings. We reiterate 'Buy' on the stock from a long term perspective.

We would like to remind our subscribers that for the purpose of risk minimization, one should avoid having more than 5% exposure on any one stock from the overall equity portfolio. Please do visit our asset allocation section for further details.

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