Petronet LNG's inventory boost is not enough to sustain earnings growth

What happened

Petronet LNG reported September-quarter EBITDA of Rs.1,663 crore, up 49% year-on-year and 10% above estimates, while revenue fell 35% to Rs.7,200 crore. Trading and inventory gains were Rs.668 crore, compared with Rs.41 crore a year earlier; core EBITDA excluding those gains fell 8% to Rs.1,130 crore.

Confirmed

Global impact / market context

The gap between reported and core EBITDA indicates that trading and inventory gains, rather than recurring terminal and gas-selling activity alone, supported the quarter’s earnings growth. If those gains ease, profit growth may weaken unless higher volumes, improved sales mix, or stronger demand make up the difference.

Analyst inference

Revenue fell partly because more LNG moved through tolling arrangements: customers supplied the gas and Petronet booked regasification charges, not the full gas-sale value. Fertilizer and city gas demand recovered, while management expects refinery and petrochemical users to switch from liquid fuels to gas if prices allow.

Confirmed

What to watch

1. Track trading and inventory gains against core EBITDA in future results; a smaller contribution would reveal whether underlying terminal operations and gas sales can sustain earnings growth. Analyst inference
2. Watch whether refinery and petrochemical customers return to gas from liquid fuels; management’s expectation depends on prices becoming low enough to support that switch. Proposed
3. Check the balance between contracted gas sales and tolling volumes, since contracted sales book the full gas value as revenue while tolling records only terminal charges. Analyst inference

Evidence

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