The Hindu Business Line : Petronet LNG: Buy

Shareholders can continue to stay with the stock for further appreciation in the next one year and buying can be considered in small lots, especially at declines from the current levels. Returns may, however, accrue over a longer period and investors can buy with a one-year perspective.

The re-rating appears to be linked to the prospect of the project attaining full capacity of five million tonnes by April 2005.

Presently, the liquefied natural gas (LNG) import and regasification facility of the company at Dahej, Gujarat, is operating at a capacity of 2.5 million tonnes only.

Petronet LNG has a contract with RasGas of Qatar to supply LNG for 25 years at a price linked to the Japanese Customs Cleared (JCC) basket price for crude oil.

However, by mutual agreement between RasGas and Petronet, the price will be fixed for the first five years of the contract.

Petronet LNG's gas is marketed by three of its promoters GAIL India, Indian Oil and Bharat Petroleum. GAIL markets 60 per cent of the gas through its HBJ trunk pipeline to buyers from various industries, including power.

Petronet receives a regasification charge of Rs 23.70 per million British Thermal Unit (MMBTU) which is its main revenue, while all other charges, including transportation, insurance and forex fluctuations, are passed through to its buyers.

Revenue and earnings growth for Petronet will come mainly from increased volumes of gas production. In addition to this is the 5 per cent escalation (every three years) built into the regasification charge.

It is in this context that the utilisation of the LNG terminal at full capacity becomes important.

Revenues and earnings will double once the full capacity is attained in April 2005 and, importantly, the increased revenue will almost fully go down to the bottomline as there will be no extra cost whatsoever for reaching the full capacity.

For the first half of this fiscal, Petronet posted cash profit of Rs 11.4 crore on a turnover of Rs 890.5 crore; however, at the net level, it was a loss of Rs 35.6 crore.

This is in line with the projections made at the time of IPO and the loss is mainly because of the terminal operating at truncated capacity. It may not be until 2005-06 that the company will report its first net profit.

Meanwhile, Petronet is planning to expand capacity to 10 million tonnes at Dahej even as it is discussing a second terminal at Kochi with a capacity of 2.5 million tonnes.