Petronet LNG Q3FY12 Earnings’ Review

Boosted by the dwindling domestic gas production, Petronet LNG posted yet another stellar quarterly performance and managed to beat street estimates by a long margin. The state-owned utility company posted a whopping 73 per cent rise in net profits to Rs 295.38 crore during the December quarter of 2011 as against Rs 170.84 crore in the corresponding quarter of the previous year. Street estimates had pegged the net profits at Rs 265 crore.

On the topline front too the company posted a hefty 75 per cent rise in net sales to Rs 6,330.26 crore as compared to Rs 3,600.45 crore in December 2010. When compared to street estimates the same stood at Rs 6,070 crore.

The all-round robust financial performance can be attributed to higher growth in volumes (firm + spot + re-gasification) and higher re-gasification charges. The volumes in Q3FY12 rose by 21 per cent on a YoY basis to 144.93 TBTU mainly on account of higher capacity utilisation of 114 per cent at its Dahej facility. Going forward the company is expected to continue this robust performance on the volume front owing to the continuing decline of domestic natural gas output, which fails to keep up with the robust demand.

Moving on, the EBIDTA margins came under pressure from higher input costs and a rise in other expenditure. The EBIDTA margins in Q3FY12 have dropped by 147 bps to 8.21 per cent from 9.68 per cent in Q3FY11. However, the PAT margins were cushioned by a 32 per cent YoY drop in interest outgo on account of debt repayment amounting to Rs 500 crore. The PAT margins for Q3FY12 stand at 4.67 per cent.

In other developments, the company has completed 95 per cent of its work at the 5 MTPA Kochi LNG terminals and expects to achieve final completion by Q3FY13E. The company expects moderate volumes for the first two years and thereafter it sees some ramp-ups. On its proposed greenfield expansion on the eastern coast of India, the company has finalised the location for its third LNG terminal green with a capacity of 5 MTPA at Gangavaram in Andhra Pradesh. The detailed feasibility report is expected to be complete by April 2013. 
  
With the board already having approved the expansion of 5 MTPA at its existing Dahej facility and coupled with the new terminal at Kochi as also the proposed expansion on the east coast, we see the company achieving its robust target of a total capacity of 25 MTPA by 2016. This puts the company in an advantageous position to cater to the robust demand in the country.

On the valuations front, the shares of the company are trading at a PE of 11.38x its annualised EPS of Rs 14.44. Given the consistency in its robust financial and operational performance and the expectation of continuing this momentum forward, we continue to remain bullish on this counter. The only pressure on the counter is from the government-proposed policy to cap the marketing margins on the gas supplies. Here we believe that as the company is in the business of imported gas supply, which is un-regulated by the government, the probability of a cap on its margins for LNG are minimal. Hence we advise our readers to continue to holding the stock.