The oil ministry has notified the eligibility conditions for registering terminals for liquified natural gas (LNG). An important condition is that a common carrier capacity of 20% of the short-term uncommitted re-gasification capacity, or 0.5 million tonne per annum, whichever is higher, would be required.
What does this mean for Petronet LNG Ltd? The new rules are unlikely to have a major impact on its existing capacity.
The notification states that any entity desirous of establishing or operating an LNG terminal after the establishment of the Petroleum and Natural Gas Regulatory Board will have to fulfil the conditions.
In a note to clients, Nomura Equity Research pointed out that Petronet’s Dahej terminal started operations (in 2004) much before the board was established. Given that, it’s unlikely that the new regulations would be of much importance for the existing terminals.
Petronet’s financial performance has been better than expected for the first half of this fiscal.
In fact, last quarter’s results were spectacular, with the company reporting its highest ever quarterly net profit of Rs.315 crore.
What’s more, analysts expect the company to perform better in the current quarter as well, on the back of lower spot LNG prices.
Petronet is in a sweet spot considering the lack of domestic gas supplies in India. At Rs.160, the stock trades at 10.8 times its estimated earnings for the next fiscal.
While that may mean valuations are inexpensive, the stock seems to be capturing most of the near-term positives.
A key factor to be monitored by investors would be the commissioning of the Kochi terminal, which the company expects will be done by the end of this fiscal. Any delays will not be pleasant news. Volumes are expected to be lower initially at the terminal. Nevertheless, analysts see upside risks to the company’s earnings per share in fiscal 2014 if gas prices remain softer, which could allow Petronet to contract higher gas quantity for the Kochi terminal.