Petronet LNG has lost around 20% on bourses since its 52-week highs of Rs 175.15 on November 5, 2012. Cut in volume estimates coupled with delay at the new 5 MTPA Kochi terminus looks like one of the major reason for underperformance.
The terminus that was to commence in December, 2012 is now slated to be commissioned in the second half of FY14. Also the continuous delay in the completion of pipeline infrastructure from the terminal -- that will be essential for supplying gas to the customers has led to further trimming of the capacity utilization estimates. Although, at current prices, the stock may be factoring in most of the concerns. The upside may come only when concerns on Kochi take a back-seat.
Volume benefits – slightly distant
Moving forward, in the fiscal year FY14, while the company is likely to see its Kochi terminal being commissioned by half, capacity utilization of the terminal will continue to remain low. The pipeline required to supply gas to other customers in Karnataka, Tamil Nadu and Kerala has not been completed. Therefore, the company will only be able to supply gas to two customers (Kochi Refinery and Fertilizers and Chemicals Travancore at Kochi). This would mean that the capacity utilization at Kochi would be around 10% to start with. The company has guided for the re-gasification charges to be at around Rs 62 per mmbtu levels.
The company said that the pipeline work in Kerala is progressing fast while GAIL has taken up the issue with Tamilnadu government on priority basis.
Thus with Kochi terminal likely to see only 10-12% capacity utilization, the volumes growth may not be much in FY14 as Dahej 10 MTPA terminal is already running at more than 100% capacity utilization. Though another Jetty is also being constructed at Dahej, however the same will be completed by end of FY14. Hence the benefits from jetty facilitating another 1MPTPA capacity is only likely to come by FY15.
Profits remain flat in the fourth quarter
Petronet LNG bottom-line for the quarter ending March’13 came flat at Rs 245.14 crore despite top line increasing 33.5% y-o-y to Rs 8440.84 crore. The benefits in the top-line were negated by the cost of LNG degasified referred to as raw material costs that increased 34.7% year-on-year to '7,999crore. Thus the EBITDA could increase by 2.7% year-on-year only to Rs. 434 crore and margins suffered a decline of 150 bps 5.1%.
The profitability of the company was also hit by higher proportion of contractual volumes. The spot purchases took a beating as LNG
prices rose to $18-20 per mmbtu and thus tolling volumes at 122 TBTU (trillion British thermal units) came flat.
However for the full financial year 2013, Petronet reported highest ever net profit of Rs 1,149.28 crore, up 8.67% over Rs 1,057.54 crore in FY12. The profit was up as the 10 million tons per annum liquefied natural gas or gas super-cooled to turn it into liquid and the company’s Dahej terminal operated at 103% capacity utilization.
Outlook
Though the company has tied up for 4 MTPA LNG supplies from USA recently and also plans taking 25% stake in GSPL’s LNG terminal, as well as is working towards a new LNG terminal in Andhra Pradesh, all these are likely to accrue benefits in longer term. Alok Deshpande at Elara observes that earnings uncertainty is likely to continue to weigh on the stock and also the FY14 bottom-line would be hit mainly due to the impact of depreciation and interests costs from the Kochi.
Arya Sen at Jefferies observes that we cut our FY14/15 earnings estimates to factor in slower ramp up at Kochi and cut our target price to 170.
Analysts at Nomura add have further lowered their Kochi ramp-up assumption, and assume onlyv6/15/25% utilisation in FY14/15/16F however they feel that looking at the demand Petronet can surprise both on volumes and marketing margins at Dahej.
Though consensus target price for the stock priced at Rs 139 levels stands at Rs 177 as per Bloomberg, looking at revised earnings for Fy14 the stock may see the upside only when market start factoring in FY15 estimates.
