Petronet LNG’s inventory boost is not enough to sustain earnings growth
Petronet LNG’s September quarter (Q2FY27) results were decent despite supply disruptions amid the West Asia war. Ebitda surged 49% year-on-year (y-o-y) to ₹1,663 crore (excluding one-offs), beating consensus estimates by 10%, driven by better-than-expected volumes and a favourable mix of higher spot LNG sales.
Both revenue and profit after tax beat consensus estimates. However, revenue fell 35% y-o-y to ₹7,200 crore, weighed by a change in volume mix: lower sales of contracted natural gas and higher volumes handled through tolling arrangements.
Under the former, Petronet procures LNG and sells the regasified gas to customers, with the entire sale value booked as revenue. Under the latter, customers procure LNG themselves and pay only regasification charges for using Petronet’s LNG terminal.
Inventory boost
Profitability got a leg-up from operational and commercial efficiencies, primarily trading and inventory gains of ₹668 crore in Q2FY27, compared with ₹41 crore a year ago, the management said. Antique Stock Broking notes that core Ebitda, excluding these gains, fell 8% y-o-y to ₹1,130 crore.
Petronet benefited from a recovery in demand in Q2FY27 despite higher prices, led primarily by the fertilizer and city gas distribution sectors. The management expects the refinery and petrochemicals sectors, currently using liquid fuels, to switch back to gas if prices normalize.
Total gas volumes processed rose 12% sequentially to 231 trillion British thermal units (TBtu), although y-o-y growth remained modest at 1.3%. Lower supplies from Qatar and the UAE were offset by higher imports from the US, Oman and African countries.
Dahej strength
Petronet’s Dahej terminal capacity utilization rose to 94% in Q2FY27 from 84% in Q1FY27 (excluding the capacity commissioned in Q4FY26) and 92% in Q2FY26.
However, the Kochi terminal continues to operate at suboptimal capacity of 23%, primarily due to significant delays in commissioning the Kochi-Bengaluru gas pipeline. Originally scheduled for completion in 2013, alongside the terminal, the pipeline is now expected to be commissioned by the end of FY27. Its completion should help lift throughput from Kochi.
In the last two trading sessions, the Petronet stock rose 3%. Its CYTD returns stand at 9%, and it trades at 12 times FY27 estimated earnings, according to Bloomberg data.
“Earnings remain highly dependent on volatile optimization and trading gains, while prolonged Qatar force majeure and slower-than-expected capacity bookings at the expanded Dahej terminal could weigh on volume growth and returns,” said Elara Securities (India).