It is well known that Petronet LNG Ltd has benefited from the shortage of domestic gas supplies in the country. In recent weeks, there has been another reason to be bullish on the company. That’s because spot liquefied natural gas (LNG) prices have been showing a declining trend. This will help increase volume for the company in the days to come.

“Average India spot LNG prices continued to decline despite a sharp increase in crude, with prices ruling at about $10.5 per million metric British thermal units (mmBtu) currently," wrote analysts from Prabhudas Lilladher Pvt. Ltd in a note to clients last week. According to the brokerage firm, India LNG spot prices had touched a high of about $16 per mmBtu in May. Of course, a key reason for the lower LNG prices has been the restart of two Japanese nuclear reactors, which has reduced demand.

While Petronet’s June quarter financial performance exceeded analysts’ expectations, volume had disappointed a bit. For the quarter, the company’s regasification volume fell to 127 trillion Btu from 135 trillion Btu in the March quarter. The decline in volume was on account of maintenance shutdown of some fertilizer plants in April. However, demand is expected to bounce back this quarter and lower spot prices, too, are likely to help.

Meanwhile, Petronet’s growth rates have come down in the last two quarters.

On a year-on-year basis, the company’s net profit in the June and March quarters increased by about 6% and 19%, respectively. In comparison, net profit growth in the first three quarters of the last fiscal year was substantially higher (in the range of 73-130%). Still, the June quarter net profit is sequentially higher, which augurs well. Revenue growth, too, has slowed compared with earlier quarters.

Analysts expect Petronet’s earnings to be muted this fiscal year. The next growth driver would be the Kochi terminal, which is expected to be commissioned by end-2012. Investors would do well to follow the developments on that front. Needless to say, any delays on this will not go down well with shareholders.

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