Petronet LNG: is the worst behind it?

Petronet LNG: is the worst behind it?

Many analysts believe that the company will continue to face volume pressure in the near term, as spot LNG prices are muted

It’s a bit perplexing that the Petronet LNG Ltd’s stock has gained 5.2% since it announced a miserable set of numbers for the quarter ended March on 25 April. One explanation could be that investors believe the worst is over for the company and the situation will improve. Moreover, the stock had declined by 10% in the week prior to the results announcement, perhaps because of expectations of weak financials.

Petronet LNG’s operating profit for the March quarter was Rs.221 crore, which represents a 43% year-on-year decline. Total operating revenue fell by 31% to Rs.7,161 crore. What gives? Petronet LNG’s March quarter Ebitda was at a five-year low as Dahej utilization was at a five-year low (at 74%), highlights Nomura Research in a report. Ebitda stands for earnings before interest, tax, depreciation and amortization.

Volume fell sharply last quarter. Petronet LNG’s March quarter total volume stood at 95.6 trillion British thermal units (tBtu), 18% lower from the year-ago period and 32% lower compared with the December quarter. Higher priced long-term volumes were much lower this time around, as the variance between lower spot liquefied natural gas (LNG) prices and long-term prices kept customers away from long-term cargoes.

Currently, the stock trades at around 15 times its estimated earnings for this fiscal year. While valuations are not too demanding, triggers for a meaningful outperformance are few and far between. Many analysts believe that the company will continue to face volume pressure in the near term, as spot LNG prices are muted. Analysts from Nomura though maintain that the worst is behind the company and that LNG sales will likely rebound. According to the brokerage, some reasons for this optimism include: restart of LNG offtake for the power sector this month, fertilizer capacity is back online after shut-downs and demand in several sectors is likely to improve, particularly in steel, refining and city gas distribution.

Petronet LNG is expanding its Dahej capacity to 15 million tonnes per annum (mtpa) from 10 mtpa, which is expected to be completed by November 2016 and is on schedule, according to the company. While that augurs well, utilization at the Petronet LNG’s Kochi terminal continues to remain low. What’s more, until the connected pipelines are ready, there is limited scope for improving that yardstick. For 2014-15, the Kochi terminal reported a pre-tax loss of around Rs.400 crore. Analysts do not expect the Kochi terminal to be profitable anytime soon.

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