After a good fiscal year 2017 (FY17), Petronet LNG Ltd has started FY18 on a strong footing.

The liquefied natural gas (LNG) importer’s June quarter (first quarter or Q1) profitability got a boost owing to higher volume processed thanks to the increase in its regasification capacity, post the expansion of the Dahej (Gujarat) terminal and better operational efficiencies. The Dahej terminal’s expanded capacity stands at 15 million tonnes per annum (mtpa).

Last quarter, revenue increased about 21% from a year ago. The Dahej terminal processed 184 trillion British thermal units(Btu) of LNG during the June quarter and operated at around 97% of its average increased nameplate capacity. It saw an increase in throughput over the March quarter by 4% and increase in throughput over the June 2016 quarter by 12%. Further, the Kochi LNG terminal in Kerala processed its highest ever quantity of eight trillion Btu of LNG, according to the company.

“Petronet’s take-or-pay business model has resulted in stable volumes over the past four quarters, even as Indian LNG imports have fallen ~10% from the peak," said Credit Suisse Securities (India) Pvt Ltd in a report on 10 August. Operating profit for the June quarter increased 15.8% to Rs744 crore, beating analysts’ estimates. However, profit after tax at Rs438 crore was lower than some analysts’ expectations on account of the higher-than-expected tax rate.

Nonetheless, the Petronet LNG stock has outperformed the S&P BSE 100 index meaningfully in the last one year in keeping with its strong financial performance. Currently, the stock trades at about 20 times estimated earnings for FY18, based on data from Bloomberg.

The next leg of growth will come from higher utilization at the Kochi LNG terminal. The Kochi-Mangalore pipeline is expected to be completed by December 2018. That should help the Kochi LNG terminal ramp-up and improve utilization. Additionally, expansion at the Dahej capacity to 17.5 mtpa from 15 mtpa is expected to be completed by the end of 2019. While these factors augur well, they will play out a bit too far into the future. Small wonder then that analysts expect Petronet LNG’s earnings growth to be muted in the interim. This could well mean that sharp appreciation in the stock over the medium term is likely to be capped.

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