Petronet LNG Q4 Results Review - Inventory Loss, Provisions Impacted Earnings, Robust Volume: Dolat Capital

Dolat Capital Report

Petronet LNG Ltd.'s Q4 FY24 results were below our estimated gross profit/Ebitda/profit after tax by -15%/-18%/-20% mainly due to-

1. provisions of Rs 0.37 billion for nonrecovery of ‘Use or Pay’ payments; and

2. inventory loss of Rs 1.07 billion, on account of fall in LNG prices in Q4FY24.

Petronet LNG increased its provisions to Rs 3.6 billion till FY24 end (till end of 9M FY24 Rs 3.2 billion + Q4 FY24 additional provision of Rs 0.4 billion). Its total ‘Use or Pay’ payments/receivable towards offtakes for underutilization of Dahej terminal stands at Rs 14.7 billion (net of provisions), which is a challenge to recover.

Although management has received bank guarantees worth Rs 12.2 billion (CY21+CY22).

Dahej expansion is expected to complete by end of FY25E with no capacity bookings for incremental 5 metric million tonnes per annum. The company is also planning to invest in 2 mega capex projects (petrochemical plus Gopalpur LNG terminal), which will lead to aggressive capex spends FY25 onwards.

We build in incremental Rs 40 billion/annum capex from FY25E that implies negative free cash flow and pressure on dividend payouts. We have largely maintained our earnings estimates and tweaked the DCF based target price to Rs 240/share (earlier Rs 227). Rise in target price is due to lower risk-free rate assumption. Maintain ‘Sell’ rating on the stock.

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