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Excellent results on double-digit volume growth

Petronet LNG Ltd (Petronet) is a public sector company that imports liquefied natural gas (LNG) and establishes LNG terminals in India. It operates one regasification terminal each in Dahej (17.5 MMTPA installed capacity) and Kochi (5 MMTPA).

* In Q1FY25, the consolidated revenue grew by 15.1% YoY to Rs. 13,415cr, supported by robust volume growth.

* EBITDA rose 32.2% YoY and the margin widened 150bps YoY to 11.6%, due to strong operational performance.

* Capacity expansion at Dahej and Kochi terminals, increased capital expenditure, improving utilisation, and robust volume growth are positive signs for its long-term performance. Therefore, we upgrade our rating to ACCUMULATE on the stock, with a revised target price of Rs. 397 based on 14x FY26E adjusted EPS.

Volume growth fuels revenue

Petronet's consolidated revenue for Q1FY25 experienced a significant 15.1% YoY increase, reaching Rs. 13,415cr. This growth was primarily driven by robust volumes, fueled by moderate LNG prices and improved capacity utilisation. Notably, the company achieved its highest ever volume, with a 14% YoY increase to 262 TBTU in the quarter. The Dahej terminal played a key role, processing 248 TBTU of LNG, up from 219 TBTU in Q4FY24 and 217 TBTU in Q1FY24. Capacity utilisation at the terminal reached an impressive 109% during the quarter. As a result, EBITDA also saw a substantial increase, growing 32.2% YoY to Rs. 1,563cr, with margins expanding by 150bps YoY to 11.6%. As a result, the reported profit after tax (PAT) grew 34.9% YoY to Rs. 1,105cr, benefiting from lower interest costs and higher other income.

Key concall highlights

* In Q1FY25, Petronet made a provision of approximately Rs. 1,300cr towards Unit of Production (UoP) charges dues. In addition, the company has written off UoP charges of Rs. 63cr.

* In Q1FY25, the company incurred a capital expenditure of Rs. 300cr. Looking ahead, it has budgeted a total capital expenditure of Rs. 3,500cr for FY25.

* For Q1FY25, the re-gasification service income amounted to Rs. 851cr.

Progress on key projects to boost capacity and future growth

The expansion project at the Dahej terminal is slated for completion by March 2025, which will increase the capacity by 5 MMTPA at a relatively low capital expenditure of Rs. 570cr. This expansion is expected to have a payback period of merely 2-3 years. Meanwhile, the Kochi terminal is expected to achieve connectivity with Bangalore by March 2025. Following this connection, the terminal will be linked to the National Gas Grid, leading to a significant increase in utilisation rates, initially reaching 60% and potentially rising further. The primary customers for this expanded capacity are anticipated to be city gas distribution entities.

Valuation

In Q1FY25, Petronet's volume and utilisation levels demonstrated significant improvement despite soft LNG prices. Looking ahead, the company's performance is expected to be driven by the expanded capacity at the Dahej terminal, pipeline connectivity of the Kochi terminal, progress on the PDHPP petrochemical project, and advancements in the floating storage regasification unit (FSRU) project. Improving utilisation at Dahej and Kochi terminals are also anticipated to support the margins. We remain confident of the company’s volume growth, and therefore, we upgraded our rating to ACCUMULATE on the stock, with a revised target price of Rs. 397, based on 14x FY26E adjusted EPS.

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