Q4FY23 Review: Petronet LNG: Miss on Q4, but improving outlook

Petronet LNG (PLNG)’s Q4FY23 performance (PAT fell 18% YoY) belied forecasts on provision for arbitration and lower marketing margins; volume decline of 3% YoY was in line. Weak outlook on LNG prompted analysts at IIFL Capital Services to upgrade trading margins, leading to 9% PAT upgrade in FY24. Stock at 11x FY24 EPS is cheap, and can re-rate materially if PLNG shelves petchem project and ups the payout.

Miss on Q4

PLNG’s Q4FY23 PAT at Rs. 6.14 billion (down 18% YoY) belied estimates on provision for arbitration (Rs. 350 million), and marketing margins. Aggregate volumes in Q4 were 3% down YoY and 10% up QoQ, as expected; the Dahej / Kochi terminal utilization was 75/20% respectively versus 78/19% YoY and 68%/20% QoQ. On an aggregate basis, decline in volumes was driven by Regas cargos (down 23% YoY), partly offset by 11% YoY growth in LT volumes. TOP charges in FY23 stand at Rs. 8.5 billion (FY22: Rs. 4.2 billion); these are yet to be paid by the off takers, for which the OCF/EBITDA conversion is 52% in FY23 versus 66% YoY.

Adding one more tank at Kochi

PLNG CFO, during the Q4FY23 post earnings call stated that: 1) TOP charges are as per contract, and will be collected from offtakers. 2) Outlook on LNG prices is weak, and should help improve terminal utilization in FY24/FY25. 3) Price gap between domestic HPHT gas (US$12.12/mmbtu) and spot LNG (US$11.5/mmbtu) has narrowed down considerably, which should bode well for overall domestic gas consumption. 4) PLNG may take up construction of additional tank at Kochi, which shall enable gas trading; timely completion of GAIL’s Bangalore-Kochi pipeline (Q3FY25) holds key. 5) Petrochem project is being finalized (Rs. 140 billion). 6) Projects to enhance Dahej capacity (22.5mn MT), jetty, storage tanks entailing capex of Rs. 40-50 billion are underway and should complete through FY25/26.

Upgrade FY24 PAT

Weak pricing outlook on LNG prices should place PLNG favorably to ramp up trading sales, for which analysts at IIFL Capital Services have upgraded their FY24 PAT estimates by 9%. FY25 could see a similar upgrade if margins hold. On the back of 13% volume growth, PAT growth works out at 5% through FY25. The stock is cheap but diversification in petrochem is a big overhang, and can be a structural overhang as well if project is conceived.