Petronet LNG justifies its valuations
Shares of Petronet LNG Ltd jumped nearly 6% during trading hours on Thursday on the National Stock Exchange. Investors were enthused by the LNG (liquefied natural gas) importer’s better-than- expected September quarter results, announced after market hours on Wednesday.
Petronet LNG reported its highest ever quarterly net profit of Rs589 crore, 28% higher than a year ago.
Higher volume processed, thanks to the increase in regasification capacity after expansion of the Dahej (Gujarat) terminal and better efficiency achieved in operations, helped profitability in the last quarter. A decline in finance costs too supported net profit growth.
The company’s Dahej terminal processed 210 trillion British thermal units of LNG and operated at around 110% of its nameplate capacity. Throughput at the Dahej terminal increased 14%, year-on-year as well as sequentially. Volume at the Kochi (Kerala) terminal was higher than expected too.
Accordingly, revenue increased 17.5% to Rs7,770 crore. Expenses increased at a relatively slower pace, ensuring Ebitda growth of 24% to Rs899 crore. Ebitda is short for earnings before interest, tax, depreciation and amortization, and is an indicator of operating profitability.
Meanwhile, investors are sitting on smart gains so far this year with Petronet LNG’s shares gaining about 33% after the stock eventually closed 3% higher on Thursday. Many analysts reckon that the sharp outperformance could well limit meaningful appreciation hereon.
Moreover, there are some concerns on demand. The LNG macro environment in India may soften, as domestic gas output rises and three new LNG terminals start up, pointed out analysts from Jefferies India Pvt. Ltd.
Currently the Petronet LNG stock trades at 19.4 times fiscal year 2018 (FY18) earnings per share (EPS) estimated by Jefferies. However, earnings growth is expected to be relatively slower. Jefferies expects 13% FY17-21 EPS compound annual growth rate. Valuations, thus, appear rich.
“Near term, focus will be on progress on construction of GAIL’s Kochi-Mangalore pipeline, which has faced some resistance from affected local residents in the last few weeks,” wrote analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd.
Completion of this pipeline is critical for any meaningful increase in Kochi terminal’s utilization, they said.