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Capacity crunch may cap Petronet’s gains

Capacity crunch may cap Petronet’s gains
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First Published: Tue, Sep 06 2011. 12 14 AM IST

Updated: Tue, Sep 06 2011. 12 14 AM IST
The Petronet LNG Ltd stock has gained 20% since mid-July, comfortably outpacing the broader market, which fell by 10%. The company’s June quarter earnings were impressive; revenue grew by 83% from a year ago and profit by 130%.
Much of the performance was on expected lines, given the gas shortage in the country. Petronet had already delivered strong returns on bourses for quite some time now. The stock has risen by as much as 130.5% since the beginning of the last fiscal year compared with a 5.7% fall in the BSE-200 index.
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The Petronet story is simple. As the largest domestic company engaged in importing, storing and regasifying liquefied natural gas (LNG), the firm stands to benefit vastly from the domestic supply shortage. The only hindrance is the rising prices of this fuel, up by some 15% in the past few months. But current evidence points to a healthy appetite among consumers; Petronet’s own volumes in the June quarter grew 40% from a year ago.
“The strong growth in R-LNG (regasified LNG) volumes and surge in marketing margins on spot R-LNG earned by GAIL (and) PLNG (Petronet) clearly depict strong demand for costly R-LNG in India,” said a note from Spark Capital Advisors (India) Pvt. Ltd.
However, capacity is already stretched. In the June quarter, Petronet operated at 105% of its capacity. Fresh facilities are some quarters away. The company’s current capacity at Dahej stands at 10 million tonnes per annum (mtpa). In its June quarter press release, the company said that the construction work at its new Kochi terminal (expandable to 5 mtpa) was on schedule and is likely to be commissioned by the end of 2012. So while demand may continue to rise, Petronet’s outlook for sales volume growth does appear muted for the next few quarters.
Yes, a rise in marketing margins on spot LNG sales may boost profitability, and, therefore, the stock in the short term. However, at current levels, the stock seems to be factoring most of the positives and further upside appears limited.
Graphics by Ahmed Raza Khan/Mint
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First Published: Tue, Sep 06 2011. 12 14 AM IST