Petronet LNG: positive news flow buoys shares
Reports said RasGas will waive the penalty Petronet LNG would have had to pay for buying less than it contracted this year, which has been a key overhang for the stock for some time
At the time of announcing financial results for the September quarter on 19 October, Petronet LNG Ltd’s share price had barely budged on an annual basis. Almost two months down the line, the stock has climbed 29%. That’s impressive, especially since the benchmark Sensex has fallen 7% in the same period.
Positive news about the company’s long-term contract with RasGas of Qatar is a key factor at play here. Reports said RasGas will waive the penalty Petronet LNG would have had to pay for buying less than it contracted this year, which has been a key overhang for the stock for some time.
A huge gap in price between high-priced contracted long-term volumes and lower spot prices forced the company to reduce offtake from RasGas. For the nine months ended September, regasfied LNG (liquefied natural gas) offtake under long-term sales contracts was around 68% of planned volumes, resulting in lower gas offtake under long-term supply contract with RasGas.
Additionally, reports also say both parties are renegotiating the contract with favourable pricing, one that is in keeping with the current atmosphere of lower energy prices. “We expect the import price under the R-Gas contract to decline by a sharp 45% from the current $12.5 per million British thermal units (mmBtu) to $7 per mmBtu, and offtake to return to normal levels," analysts from Nomura Research wrote in a report on 26 November.
To be sure, Petronet LNG is yet to make an official announcement. Still, analysts reckon recent outperformance in shares suggests shareholders are capturing a goodly portion of the optimism. The stock trades at 17 times estimated earnings for the next fiscal year. Utilization of the Kochi terminal is another factor investors must keep a close tab on.
Meanwhile, Petronet LNG’s quarterly results had beaten estimates by a good margin. Reported net profit of ₹ 249 crore was similar to the June quarter’s profit when numbers were boosted by a tax reversal, but 5% lower than a year ago. Pretax earnings increased as much as 43% sequentially. The company operated its Dahej terminal at about 120% of capacity, which must have helped performance. It had also reported operating profit margin of 6.2%, the highest in at least past eight quarters.
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