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Petronet LNG Ltd has had a good run in fiscal year 2017 (FY17). The March quarter results are just a continuation of the excellent trend seen in the first three quarters. Little wonder the share price is about 5% higher since the firm announced fourth-quarter results last week. It reported a net profit growth of 92% year-on-year for the March quarter to Rs471 crore, the highest ever quarterly profit, according to the company.
Strong other income growth, thanks to gains related to forex movement, helped profit growth. Similar adjustments have been made in other expenses, which rose sharply resulting in neutral impact on profits. Revenue rose 5% but operating profit increased at a faster pace of 24% to Rs616 crore, helped by a decline in employee costs and flat input costs.
For the March quarter, the Dahej terminal processed 177 trillion British thermal units of liquefied natural gas (LNG) and operated at around 92% of its average increased nameplate capacity. The terminal has a capacity of 15 million tonnes per annum (mtpa). However, total sales volume fell in the March quarter against the December quarter, as a sudden spike in spot prices in January affected spot volume.
But that may not worry investors. The company has reported its highest ever annual profit of Rs1,706 crore for FY17 .
Not surprisingly, investors have supported the Petronet LNG stock. It has outperformed the S&P BSE Sensex by a good margin in the past year. Currently, one share trades at around 17 times estimated earnings for this fiscal year. From a long-term perspective, prospects are upbeat. The fact remains that as long as gas demand in the country is strong, which is the case, given the lack of domestic gas supplies, the firm is on a good wicket. Moreover, sizeable global supply additions are expected to keep LNG prices low, thus supporting demand.
Still, the sharp run-up in the stock could well limit meaningful appreciation in the short term. Further, in the interim, the growth outlook isn’t spectacular. Analysts from JM Financial Institutional Securities Ltd pointed out in its post-results note on 10 May, “In the near term, growth is likely to be muted as Dahej capacity expands from 15 mmtpa to 17.5 mmtpa and commissioning of Kochi-Bangalore-Mangalore pipeline is expected only in 2HFY19E.”
Analysts worry that demand from the power sector could get adversely impacted, especially after the discontinuance of the PSDF (Power System Development Fund) scheme for gas-based power projects. Investors would do well to follow developments on this count.