See FY08 turnover at Rs 7,500 cr: Petronet LNG


Petronet LNG has declared its fourth quarter results. The company reported net profit of Rs 106 crore (Rs 1.06 billion) in fourth quarter versus Rs 66.1 crore (Rs 661 million) in corresponding quarter of previous year.

P. Dasgupta, CEO and MD of Petronet LNG sees FY08 turnover at Rs 7500 crore. He mentions that incremental volumes have boosted Q4 bottomline. He informs that the company is in its final stages of signing up for 36 cargoes.

Excerpts from CNBC-TV18's exclusive interview with P. Dasgupta:

Q: Did you get a lot of spot cargoes this year, which shoved up your revenues numbers quite significantly?
A: We imported 13 spot cargoes, but we could process 12. The 13th one has been carried forward in stock.
We had to do some de-bottlenecking in critical equipments and what we did the whole of last year, was to test all our systems, processes and logistics; which gave us the confidence to commit almost 1.5 million metric tonnes for Ratnagiri, and from January '08 this will ramp up to 2 million metric tonnes, when they start up the third block.
As you would have seen from our results, it is essentially the incremental volumes over the base quantity of 5 million metric tonnes, which has given us this large profit. As everybody knows, the incremental volumes do not come at an exponentially equal cost, but at a marginal cost.
Next year, the turnover is likely to be Rs 7500 crore, with 30 cargoes more for Ratnagiri.

Q: What can you expect by way of additional spot cargoes and how much can you support in FY-08 now?
A: Since we have committed to supply our power plant to Ratnagiri, we cannot be servicing them through spot purchases. Therefore, we are already in the final stages of signing up for short-term contracts for 36 cargoes going upto December 2008; and closer to December 2008, we will do it for 2009.
We don’t consider it wise to tie up too many cargoes long-term because the scene is very volatile and new capacities are coming up for LNG starting from 2009. So pricing regime could significantly change, and therefore we are doing it in tranches.

Q: You spoke about Rs 7500 crore in revenues next year; what kind of a bottomline could that commit, given that many of the new cargoes or contracts are incremental over your volume base?
A: In this business you would see an incremental growth in profit and in utility finance models. It will typically reflect the kind of margins that we have had in the last financial year.
It will be significantly higher, at Rs 7500 crore because we have signed up with Ratagiri for 1.5 million metric tonnes. So until March 2008, we will see Petronet doing 6.5 million metric tonnes, as against a little below 6 in '06-07.

Q: What kind of LNG rates are you tying up most of these contracts with; do you expect any kind of pressures coming in from there?
A: Individual rates of each of these contracts is no longer material as the Government of India has advised a new policy whereby we have to offer a unified rate to all customers on a non-discriminatory basis, existing as well as new.
Going by that policy, we have offered a unified rate at dollars, approximately USD 4.32 at PLL flanch. It's a price for all customers. Regardless of whether they are the power customer or from the fertilizer or automotive sector, they all get it at the same unified price.
Therefore, it is immaterial, at what rates the individual cargoes or short term contracts is being signed. We would keep revisiting the uniform rate as and when new contracts are signed.But as of today, we have offered till December 2008, a rate of USD 4.32 cent at PLL flanch after re-gasification.

Q: At that rate would you be able to hold margins in that broad 10-11% kind of ballpark?
A: Most certainly. We are here to make profits and not play Robinhood.

Q: I believe that you have been looking around for a strategic partner - have you taken any significant strides in that direction?
A: We do believe that it is time now for Petronet to look at synergic diversification. Therefore, when we are talking about strategic partners, it is not only partner who would bring in additional LNG.
From June next year, we would be ramping up to 12.5 million metric tonnes capacity. One of the synergic diversification that we should be looking at, is to set up power plant in our backyard which is the SEZ in Dahej. The advantage is that the coal energy which is not being harnessed from our terminal today; when that is sent to the power plant, the efficiency of the power plant would increase by 30%.So we are looking at a strategic partners who is in the domain of power, who has LNG or who can facilitate securing LNG for Petronet - at prices which would enable us to produce and sell power at the cost at which power is sold in the country today.

Q: Does is it look like Qatar investment would be the most likely partner or not necessarily; you are talking to other people as well for that strategic investment?
A: Qatar investment has already completed the due diligence.Of course, we are looking at other partners because Qatar’s domain would be specifically LNG only. However, we are looking at a much wider spectrum, where we could carry the company forward with synergic diversifications.

Q: How would you do this strategic placement? Would it be an FCCB, would it be a direct equity sale or preferential allotment and what kind of stake are you looking to give your strategic partner?
A: It really doesn’t matter for us whether it is FCCB or plain vanilla equity, because FCCB is also by law.
The buyer of the FCCB has the right to convert the FCCB into equity the very first day, and one has time upto 5 years or 3 years to convert. So for us, it doesn’t make a difference. But the longer they take to convert that FCCB, it is better for the company because we don’t have to service that portion of the money by way of dividend.
Looking at the bottomline, it certainly doesn’t make a difference.
So we will go by what the partner would be interested in. If they want a straight equity right at front, we will do that; or if it is FCCB we will do that. We already have AGM approval for FCCB or equity both.FCCB have to be placed widely out; but if we are going to bring in a strategic partner it has to be through a preferential allotment. We will have to re-visit the approval that we have of the annual general meeting.

Q: Would it be a greater than 15% stake if its an equity placement or lower?
A: It depends; if we take only one strategic partner it could be 10% or less than 10% depending on the price at which those FCCB’s would convert.But if it is more than one, and we are open at that; we are looking at every possibility since we are aiming at a much wider, bigger canvas this time. This would include synergic diversification.

Q: If you do give 15% to more than that to one partner, then that would warrant an open offer to shareholders?
A: Yes, we would obviously keep all that in mind.So would the strategic partner, who may not like to land up making open offers in the country and we will keep that in mind that the 15% would trigger the takeover quote; we are aware of that.

Q: By when do you think this whole process will be completed?
A: Certainly before September of this year, we will see the real contours of the diversification that we are talking about. Expansion in LNG is already happening; Dahej expansion is started off and by June, the vaporising capability, re-gasification capability ramps up to 12.5 million metric tonnes, and two additional tanks get completed by December 2008.

Moneycontrol.com, April 17, 2007