Despite a better-than-anticipated profit reported by Petronet LNG for the quarter ending December 2012, the stock has failed to impress the Street. It continued its sideways movement and underperforms the Sensex. While gas demand continues to remain good, pushing its volumes, the anticipated major boost due to capacity expansions is further delayed.
The new five-MTPA terminal at Kochi, to be commissioned in the March 2013 quarter, has now been delayed to the June 2013 quarter. One-year consensus target price of Rs 182, according to Bloomberg data, too, indicates a 12.5 per cent upside from the current levels.
Good December 2012 quarter performance
Volume of gas sold, after dipping in the June 2012 quarter to 127 TBTU (trillion British thermal units), has continued to rise. During the September 2012 quarter these grew to 135 TBTU, while in December quarter it was 140.6 TBTU, mainly due to spot volume growth of 11 per cent to 30.5 TBTU. This is due to fall in domestic gas production and expect it to grow further during coming quarters.
| SUBDUED PROFITABILITY IN FY14 | |||
| In Rs crore | Q3FY13 | FY13E | FY14E |
| Net sales | 8,423 | 31,370 | 40,147 |
| % change y-o-y | 33.0 | 38.2 | 28.0 |
| EBIDTA | 529 | 2,023 | 2,228 |
| EBIDTA (%) | 6.3 | 6.4 | 5.4 |
| Net profit | 319 | 1,225 | 1,073 |
| % change y-o-y | 8.0 | 15.8 | -12.4 |
| EPS (Rs) | - | 16.3 | 14.3 |
| PE (x) | - | 9.9 | 11.3 |
| E: Estimates Consolidated financials Source: Nomura Equity Research | |||
Higher spot volumes also helped profitability since Petronet earns marketing margins over and above distribution margin. Thus, earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 529 crore for the quarter grew five per cent annually and two per cent sequentially.
Limited volumes boost over medium term
In the medium term, the company will benefit from commissioning of its five-MTPA Kochi facility, which has been delayed by a quarter. However, the company will not be able to operate at full capacity due to non-availability of pipeline infrastructure in south Indian markets (Karnataka and Kerala).
There are however, longer term positives for the company. Gujarat State Petronet Ltd (GSPL) has booked 2.25 MTPA of re-gas capacity for a period of 20 years, which can be supplied from its Dahej terminal. GSPL will take 1.25 MTPA after January 2014 post-completion of the jetty and a further one MTPA will start in early CY 2016.
Amongst research houses, Nomura is the most bullish with a price target of Rs 225. “With domestic gas volume declines continuing and LNG demand strong, we think marketing gains will remain high near term,” says Nomura. However increased depreciation and other costs related to Kochi terminal will impact profits in FY14.
Alok Deshpande at Elara Capital observes that “the stock may continue to move sideways for the next two quarters before it breaks out positively on Kochi commissioning.”
Another word of caution comes from Edelweiss -- Shell’s Hazira LNG capacity expansion and recently commissioned GAIL’s Dabhol terminal could compete with Petronet for volumes. They have reduced their stock price target from Rs 200 to Rs 191.
