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The Petronet LNG scrip has lost around 20 per cent since its 52-week high in November last year, due to lower volume estimates brought on by delays at its new five million tonnes per annum (mtpa) terminus at Kochi. The terminus that was to be commissioned in December last year is now slated to come up in the second half of FY14.
Also, the continuous delay in completing the pipeline infrastructure from the terminal that would be essential for supplying gas to customers has led to further trimming of capacity utilisation estimates.
Though at current prices the stock could be factoring in most concerns, it could take a few more quarters till concerns on Kochi take a back seat.
Volume benefits distant
Besides, capacity utilisation of the Kochi terminal is likely to remain low. The pipeline required to supply gas to other customers in Karnataka, Tamil Nadu and Kerala has not been completed. So, the company will be able to supply gas to only two customers - Kochi Refinery and Fertilizers and Chemicals Travancore at Kochi. This would mean capacity utilisation at Kochi would be around 10 per cent. The company expects the re-gasification charges to be around Rs 62 per million British thermal unit (mBtu).
The company said the pipeline work in Kerala is progressing fast, while GAIL has taken up the issue with the Tamil Nadu government. Thus, with the Kochi terminal likely to see only 10-12 per cent capacity utilisation, volume growth might not be much in FY14 as the 10-MTPA terminal at Dahej is already running at over 100 per cent capacity utilisation. Another jetty is being constructed at Dahej, which will be completed by the end of FY14. Hence, the jetty facilitating another one MTPA is likely to come up only by FY15.
Flat profit in March quarter
Net profit for the March 2013 quarter was flat at Rs 245.14 crore, despite the top line rising 33.5 per cent year-on-year (y-o-y) to Rs 8,440.84 crore. The benefits in the top line were, however, negated by raw material costs that rose 34.7 per cent y-o-y. Thus, earnings before interest, tax, depreciation and amortisation rose 2.7 per cent y-o-y to Rs 434 crore while margins fell 150 basis points to 5.1 per cent. Profitability was hit by higher proportion of contractual volumes. Spot purchases took a beating as LNG prices rose to $18-20 per mBtu and, thus, volumes at 122 trillion British thermal units came in flat. However, for FY13, net profit was highest ever at Rs 1,149.28 crore, up 8.67 per cent from Rs 1,057.54 crore in FY12. Growth in profit was aided by the 10-mtpa Dahej terminal that operated at 103 per cent capacity utilisation.
Outlook
Recently, the company tied up for four mtpa LNG supplies from the US. It also plans to take a 25 per cent stake in GSPL's LNG terminal and is building a new LNG terminal in Andhra Pradesh. The benefits from these are likely to come only in the longer term.
Alok Deshpande at Elara said while earnings uncertainty was likely to continue to weigh on the stock, the FY14 bottom line would be hit, mainly due to depreciation and interests costs.
Arya Sen of Jefferies has cut FY14-15 earnings estimates to factor in slower ramp-up at Kochi with the target price reduced to Rs 170. Analysts at Nomura have further lowered their Kochi ramp-up assumption, and assume only 6/15/25 per cent utilisation in FY14/15/16. However, they feel looking at the demand, Petronet may surprise both on volumes and marketing margin fronts at Dahej.
Though consensus target price for the stock, currently Rs 141, is Rs 177 according to Bloomberg, looking at revised earnings for FY14 the stock could see an upside only when the market starts factoring in FY15 estimates.
