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The annual performance of Petronet LNG showed impact of the slowdown on the economy. Weak demand led to lower volumes as well as throughput at its Dahej terminal while the newly commissioned Kochi terminal dented profitability further due to non-availability of pipeline to transport gas. The impact of the same was partially mitigated by the rupee deprecation and higher gas prices.
The company reported sales of Rs 37,545 crore for FY14, up 19 per cent year-on-year but slightly lower than the Street estimates of Rs 38,085 crore. The impact on profitability was, however, much higher due to increase in operating expenses as well as depreciation and interest charges on the back of Kochi refinery commissioning. The earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 1,498 crore came lower than Bloomberg estimate of Rs 1,554 crore, and net profit at Rs 712 crore (down 38 per cent year-on-year) came lower than estimates of Rs 720 crore.
Anticipating the better performance for the quarter the stock has run-up 41.5 per cent since its 52-week low of Rs 102.5 on the January 28. On Wednesday, too, it gained a per cent as compared to a marginal fall in Sensex.
Moving forward, the company is likely to see some improvement in volumes. The starting of the second jetty at its 10 million tonnes per annum (mtpa) Dahej terminal is likely to enhance utilisation of the terminal that is operating at around 96 per cent levels. Moreover, the management highlighted that in addition to its long-term contracts of 7.5 mt it has tied up for a 1.25 mt contract with GSPC. It has also started a 0.8 mt short-term contract, which will boost volumes and profitability further. The company also remains upbeat on demand recovery as the economy picks up.
The concern, however, will continue around capacity utilisation at its Kochi terminal that is leading to higher operating expenses. The company had to bear losses of more than Rs 250 crore due to the refinery during the March quarter, including Rs 230 crore towards depreciation and interest outgo. The completion of Kochi-Mangalore-Bangalore pipeline remains crucial, but currently no clarity exists on the same.
Analysts also remain divided on the impact of the gas price in the country. While some say the rise in price will also lead to increase in demand for LNG in the long-run as price gap between natural gas and LNG reduces, there are others who feel as blended costs of gas would increase, many users of gas might opt for other fuel options.
The marketing margin on spot volumes that had increased significantly from three cent/mmbtu to 15 cent/mmbtu sequentially in the March quarter will be difficult to sustain in ensuing quarters, feel analysts, looking at the current weakness in demand.
In the backdrop, while the analysts remain positive on long-term prospects of the company they are concerned in the near-term. Analysts at Emkay Global say long-term growth remains intact, but its near-term outlook is clouded by volume ramp-up concerns for Kochi and weak demand at Dahej. Nitin Tiwari at Religare Capital Markets, too, does not see major earnings growth drivers in the near-term. Despite a majority of analysts having Buy ratings, their consensus target price of Rs 153 indicates limited upside for the stock, trading at Rs 145.
