Petronet LNG - Serious Spot; Result Update Q3FY15 ::Edelweiss, report

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Petronet LNG (PLNG) reported PAT of INR1.6bn (down 38% QoQ, up 20% YoY), 30% below consensus, as self spot trading volumes at Dahej fell 26% QoQ, while trading margins collapsed 91% QoQ. PAT included INR205m of tax reversals, excluding which core PAT was INR1.4bn. Kochi terminal incurred a loss of ~INR1bn during Q3FY15 (9mFY15 loss at INR3.25bn) as utilisation fell to 1.5% due to lack of pipeline connectivity. We believe there is a growing risk to Dahej’s long-term volume off take as long-term contract LNG prices of ~USD13.6/mmbtu are North of USD6/mmbtu spot LNG prices. Falling spot LNG prices pose significant risk to trading margin as well. We, therefore, revise down FY16E EPS 21% and TP to INR169 (INR179 earlier).

Self spot volumes tumble 26% QoQ coupled with 91% margin dip

Total Dahej volumes fell 6% QoQ, but rose 17% YoY. Dahej terminal’s capacity utilisation fell from 105% in Q2FY15 to 99% in Q3FY15, assuming 11mtpa nameplate capacity. A 26% QoQ fall in spot volumes and 91% crash in margin were primary drivers of earnings miss as spot LNG prices fell 40% to ~USD7/mmbtu, inflicting inventory losses. Although PLNG’s largest quantity (7.5mtpa) is imported from Ras Gas (Qatar) at a much higher price of USD13.6/mmbtu, management believes this is not at risk as there is a take-or-pay long-term contract across the chain. However, we envisage that the off takers will force a cut in PLNG’s re-gas margin to at least partially compensate for the 2x difference between long-term and spot prices. Notably, PLNG continued with its customary 5% p.a. hike in re-gas charges during January 2015 as well, despite severe end-user pain.

Further INR1bn loss at Kochi terminal as utilisation remains at 1.5%

High fixed cost of this capital-intensive business coupled with dismally low utilisation continues to hurt. There is no visibility on both Kochi-Mangalore and Kochi-Bangalore pipelines for at least the next 2 years.

LINK
https://www.edelweiss.in/research/Petronet-LNG--Serious-Spot;-Result-Update-Q3FY15/28262.html