Profitability improves on margin expansion
Petronet LNG was formed by the Indian government to import liquefied natural gas (LNG) and set up LNG terminals in India. The company operates two regasification terminals situated in Dahej (17.5 MMTPA installed capacity) and Kochi (5 MMTPA).
* Revenue declined 12.9% YoY in Q2FY20 to Rs. 9,361cr on but still beat the street estimates by 2.8%.
* LNG volume increased 15.2%% YoY to 250 TBTUs in Q2FY20 and vs. 226 TBTUs in Q1FY20.
* EBITDA margin improved 420bps to 12.4% due to decrease in operating costs and better product mix.
* Adj. net profit surged 108.8% YoY to Rs. 1,175cr, further helped by lower tax expenses post tax rate cuts.
* Management declared special interim dividend of Rs. 5.5 per share.
* We reiterate our BUY rating on the stock with a revised target price of Rs. 352 based on 16x FY21E adj. EPS.
Strong performance at earnings level despite revenue decline
Revenue decreased 12.9% YoY to Rs. 9,361cr in Q2FY20. Despite lower revenue, operating profit rose 23.6% YoY to Rs. 964cr as operating margin improved 304bps to 10.3%. The improvement in margin was fueled by better product mix and lower operating costs with better operating leverage partially offset by higher depreciation expenses post adoption of IAS 116. Cost of sales declined to Rs. 8,023cr vs. 9,695cr in Q2FY19. EBITDA improved 31.3% YoY to Rs. 1,160cr with EBITDA margin expanding 417bps to 12.40%. The company has achieved highest ever throughput in Dahej terminal after capacity expansion from 15 to 17.5 MMTPA and utilization rate has been 108% of the total capacity. Overall LNG volume processed by the company increased 15.2% YoY to 250 TBTUs in Q2FY20 (vs. 226 TBTUs in Q1FY20).
Net profit boosted by tax rate cuts; Special dividend a positive surprise
Petronet reported net profit of Rs. 1,103cr in Q2FY20 (vs. Rs. 563cr in Q2FY19), beating the street estimates by 68.8%. The growth in net profit was further aided by the reduction in corporate tax rate from 30% to 22%. Effective tax rate has come down from 34.9% to 25.2% due to tax rate cuts. Profit before tax increased by 2.1% YoY to Rs. 885cr in Q2FY20. Management declared a special interim dividend of Rs. 5.5 per share.
Key concall highlights
* Company recorded Rs. 72cr of one-time proposed settlement expenses during the quarter for the ongoing litigation with Cochin Port Trust (CPT) on lease rent for the Kochi Terminal
* FY20 capex guided at Rs. 450cr.
* Kochi-Mangalore pipeline delayed by 1-2 months and expected to be completed by February 2020.
* The company plans to add two new storage tanks in Dahej, which will increase the capacity to reach 19MMTPA by FY22.
Petronet has delivered a strong operating performance this quarter. We expect the capacity expansion and increase in utilization to further boost earnings in future and forecast earnings to grow at 23.8% CAGR over FY19-21E. We reiterate our BUY rating on the stock with a revised target price of Rs.352 based on 16x FY21E adj. EPS.
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