Petronet's prospects remain strong. Rising domestic demand for gas will continue to accrue benefits for the company and the supply-demand gap will keep gas imports firm. The stock trades at cheap valuations of 11.5 times FY22 earnings estimates
The March quarter earnings of Petronet LNG Ltd were disappointing, with the company missing expectations on key earnings parameters.
Volume growth was hit by localized lockdowns necessitated by the second covid wave, which weighed on its overall performance.
The company’s key terminal at Dahej in Gujarat, which contributes 95% to its total sales, saw volumes decline 1% year-on-year (y-o-y) and 12% compared to the previous quarter.
Consequently, total volumes at 218 tBtu in Q4FY21 was flat compared to the year-ago period. tBtu is short for trillion British thermal units.
Sequentially, volumes slipped 7% and missed estimates of some analysts. For instance, analysts at Motillal Oswal Financial Services Ltd had estimated volumes to come in at 231 tBtu.
The company’s revenue at ₹7,575 crore fell about 17% y-o-y and operating performance was marred by elevated costs. High employee cost was led by covid-related provisions. Fixed costs rose higher than expected and resulted in negative operating leverage, said analysts.
Analysts were also disappointed with the company’s utilization level, which they said, at 91%, was the lowest since Q1FY21. They attributed this to lower spot volumes in January on the back of a sharp spike in spot liquefied natural gas (LNG) prices.
While a fall in Petronet’s volumes is disappointing, in a positive of sorts, the industry as a whole also saw a significant decline in volumes, which resulted in the company gaining market share.
Petronet’s market share rose 700 basis points y-o-y to 68%, pointed out analysts at Jefferies. One basis point is one-hundredth of a percentage point.
That said, analysts are wary of the impact of the lockdowns on the company’s performance in the coming quarters. So, they have lowered their growth estimates.
Analysts at Jefferies have cut their volume growth estimates for FY22-23 by 1.5-2% and expect a negative operating leverage.
It is hardly surprising that the Street gave a thumbs down to the company’s March quarter earnings. The Petronet stock took a deep knock on Wednesday. It ended the day’s session down nearly 8% on the National Stock Exchange (NSE) at ₹228.85.
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