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Recommendations India

Petronet LNG 3QFY2014 performance highlights and results update

February 3, 2014, Monday, 11:59 GMT | 06:59 EST | 16:29 IST | 18:59 SGT
Contributed by Angel Broking

For 3QFY2014, Petronet LNG (PLNG) reported a decline in net profit due to decline in volumes and full capitalization of the Kochi terminal. We recommend an Accumulate rating on the stock.
Volumes fall 11.4% yoy: PLNG’s R-LNG volumes decreased 11.4% yoy to 124TBTUs. The contractual volumes stood at 95TBTUs, while spot cargos were 11TBTUs and the service cargos of GAIL and GSPC stood at 18TBTUs. However, the company’s net sales grew by 11.4% yoy to Rs.9,382cr due to higher prices of LNG during the quarter.
Higher interest and depreciation for Kochi drags PAT: The cost of LNG re-gasified increased by 14.2% yoy to Rs.8,917cr. The company’s EBITDA declined by 33.8% yoy to Rs.350cr and the EBITDA margin fell by 255bp yoy to 3.7% for the quarter. This was on account of lower marketing margin on spot volumes due to sluggish demand. The depreciation expense for the company increased by 115.7% yoy to Rs.102cr, while the interest expense also grew by 168.7% yoy to Rs.78cr due to capitalization of the Kochi terminal during the quarter. Hence the net profit declined by 57.4% yoy to Rs.136cr.
Kochi terminal likely to operate at low utilization: The Kochi terminal operated at 5% utilization level during the quarter. The company expects the Kochi-Mangalore pipeline issue to be resolved within a year.
Outlook and valuation: PLNG is well-poised to benefit from the gas demand-supply mismatch in the country over the long term. It has also lined up aggressive capex plans to increase capacity over the coming three-four years. Although earnings growth is likely to suffer in the coming one year on account of lower utilization level at its recently commenced Kochi terminal, the current price level more than discounts this. Hence, we recommend an Accumulate rating on the stock.