Monday, April 30, 2012


Re-gas volumes plunge; profitability takes a hit

After about eight quarters of secular profit growth, Petronet LNG’s 17.0% QoQ decline in PAT during Q4FY12 was a negative surprise. The decline was attributed to lower re-gasification volumes (led by lower LNG imports by GAIL and lower long-term volumes from Qatar) despite re-gasification margins going up by 5% from January 2012. Spot LNG earned relatively lower re-gasification margins sequentially thus lowering the average re-gasification charges to Rs36.7/mmbtu in Q4 from Rs38.6/mmbtu in Q3.

  Higher LNG prices lead to higher revenues: Petronet’s revenues surged by 59.9% YoY while being marginally higher QoQ at Rs63.8bn on account of higher LNG prices and higher rupee-dollar exchange rate. As volumes were lower in Q4 compared to Q3, revenues were flattish QoQ despite higher LNG prices.

  Re-gasification volumes decline QoQ due to lower imports by GAIL and lower long term volumes from Qatar: Petronet’s performance was affected in Q4 primarily owing to lower re-gasification volumes. The company processed a total of 134.5TBTUs of LNG of which 93.5TBTUs were long-term volumes, 26.0TBTUs spot volumes and 15.0TBTUs re-gasification services offered to GAIL and GSPC. GAIL imported less LNG due to lower requirement from power players who took shutdowns during the quarter. Q4 capacity utilisation stood at 105%. Blended re-gasification charges were also 5% lower QoQ at Rs6.7/mmbtu owing to lower re-gasification charges for spot LNG.

 Lower interest cost, higher other income support the bottom-line: As Petronet prepaid debt during Q3, the interest cost was lower at Rs342mn. Higher cash balance led to higher other income which stood at Rs221mn thus benefitting the bottom-line which jumped by 18.8% YoY while declining by 17.0% QoQ to Rs2.5bn

 Kochi to be operational by Q3FY13E and Dahej jetty by Q3FY14E: PLNG’s Kochi terminal is expected to be operational by Q3FY13E while the additional jetty at Dahej is likely to become operational by Q3FY14E. LNG does not form part of the PNGRB regulations as of now and hence PLNG is currently out of the purview of any regulations. According to the management it is very difficult to put forward regulations for re-gasification terminals and hence they do not foresee any threat from such a move by the government. We believe the regulations threat is overblown and hence we continue to maintain our ‘Buy’ rating on the stock. We have changed our estimates taking a conservative 5% decline in re-gasification margins from CY13 and keeping them constant thereon. Hence our DCF based price target stands changed at Rs186 (earlier Rs192) (cost of equity – 11.6%, WACC – 9.6%).