Petronet: investors fear weak December quarter
Shareholders are worried because Petronet's September quarter was also affected by lower volumes, utilization level at Kochi terminal
The Petronet LNG Ltd stock has declined quite a bit in the last one month and, in the longer term, it has underperformed the BSE-200 index since the beginning of this fiscal. Shareholders are worried about the company’s December quarter financial performance, particularly because its September quarter performance was also affected by lower volumes and lower utilization level at the Kochi terminal.
A concern for the December quarter is that volumes would be lower.
As Antique Stock Broking Ltd has pointed out, high liquefied natural gas (LNG) prices coupled with lacklustre demand may affect Petronet LNG’s 2HFY14 performance due to an adverse volume mix as seen in 2Q. “Weak operating performance and full impact of Kochi terminal capitalization may deteriorate PLNG’s 2HFY14 earnings," the brokerage said in a note last month. The full impact of the commissioning of the Kochi terminal will mean depreciation and interest expenses will increase and affect net profitability.
On the other hand, Petronet LNG’s Dahej terminal, which saw good utilization levels in the earlier years, is likely to bear the brunt of weak demand. “We expect Dahej utilization to improve, but remain well below earlier highs of 110-115% as spot LNG demand remains weak in a subdued macroenvironment," said Nomura Equity Research in a preview note. In the September quarter, the capacity utilization of the Dahej terminal stood at around 95%.
But then, most of this appears to be factored into the stock prices. Currently, the stock trades at around 9.6 times its estimated earnings for the next fiscal. While valuations may seem attractive, the outlook is not. For some more quarters, Petronet LNG’s earnings are expected to be muted on account of slow ramp and under-utilization of the Kochi terminal.
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