Ladies and gentlemen, good day, and welcome to the Q3 FY23 earnings conference call of GAIL (India) Limited, hosted by Antique Stock Broking Limited. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking. Thank you, and over to you, sir.
Thank you, Michelle. Good evening, everyone. It's my pleasure to welcome all the participants and the management of GAIL (India) Limited, led by Shri Rakesh Kumar Jain, Director, Finance, along with his other senior executives. On behalf of Antique Stock Broking, it's a pleasure for us to receive you all this evening. I'd like to request Shri Rakesh Kumar Jain to give his initial comments, and then we can move on to Q and A. Over to you, sir.
Thank you, Mr. Varadarajan. Good afternoon, everybody. My dear friends from investors and analyst community, a very warm welcome to GAIL's earning call for Q3 financial year 2023. The physical and financial performance for the quarter ended December 2022 is already shared with you, and the same has been made available on the GAIL's website. As communicated by us from time to time during various earning calls and various meetings that the company is into a very challenging business environment for reasons known to all. The disruptions in supply of LNG cargo by GMTS continued during this quarter also. However, we have taken lot of mitigation measures in order to maintain the supplies and protect our profitability.
During the quarter, we have witnessed high volatility in spot LNG prices, where the prices moved from approximate $45 per MMBtu in the month of October 2022 to $20 per MMBtu by the end of December 2022. That's swing of almost $25, which has actually led to significant inventory loss. This is up to the tune of INR 1,100 crore. This is one of which we never saw. This is one of the major item in this Q3. We booked inventory loss of around INR 1,100 crore. For the unsold volume, which is equivalent to approximate two cargos, which we purchased during October 2022, at that time prevailing market price. Now I would like to share the performance highlights of this quarter.
GAIL's turnover stood at INR 35,316 crore in the current quarter, as against INR 38,440 crore in Q2 financial year 2023. There is a decrease of approximate 8%, and this is mainly due to lower volumes in natural gas marketing, natural gas transmission, and petrochemicals segment, along with decrease in average natural gas price. If you see the average natural gas price which we sold in Q2 has decreased by almost $1, which was average 13.27 in Q2, has gone down to 12.27. Decrease in average price realization petrochemical and liquid hydrocarbon segment by INR 11,700 per metric ton and INR 7,300 per metric ton respectively.
The PBT during the quarter decreased to INR 223 crore as against INR 1,876 crore in Q2 financial year 2023. This is down by 88%. This is mainly due to decrease in gas marketing spread, and I also share just now booking of inventory loss, which is one-off. Lower PC and LST price realization, an increase in fuel expenses, natural gas transmission on account of deallocation of domestic gas, that is to the tune of 0.45 MMFCMD from gas transmission segment. You may be aware that, our, there is allocation of APM gas of 1.55. There was allocation of 1.55 MMFCMD, which was reduced to 1.1 during August.
Since this has happened all of a sudden, we had to purchase spot gas in order to meet the requirement of compressor fuel, which we are booking. Of course, this is available as a transmission tariff when the regulator revised the tariff. For the current quarter and also some what we booked in last quarter, the transmission segment has been hit by approximate INR 400 crore on this account, INR 400+. EBITDA during the quarter decreased to INR 246 crore as against INR 1,537 crore in Q2 for financial year 2023, down by 84%.
If we talk of nine months basis, GAIL clocked a turnover of INR 1,11,292 crore as against INR 64,517 crore in corresponding period of the last year, thereby registering an increase of 73% if we compare with last year. This is again mainly due to increased gas price, higher price realization on nine monthly basis in petrochemical and LHC segment, which is partly offset by declining volume in natural gas marketing, natural gas transmission, petrochemicals and LPG segment. There is a decrease in PBT by 40% on nine monthly basis. PBT is INR 5,993 crore as against INR 10,044 crore and PAT gone down by 39% to INR 4,698 crore as against INR 7,681 crore.
Coming back to physical performance, gas marketing volume stood at 89.89 MMSCMD in the current quarter as against 92.54 MMSCMD in previous quarter. The decrease in volume is mainly due to our mitigation efforts. As you know that DMTS volume is not coming, therefore we have put supply cuts and that is why it is resulting into the decrease in gas marketing volumes. This has been though there was a decrease of approximate five MMSCMD, but this has been offsetted by increased overseas sales. All in all, around 2.5 MMSCMD overall basis, gas marketing volume has gone down. Natural gas transmission volume stood at 103.74 MMSCMD in current quarter as against 107.71 MMSCMD in previous quarter.
The capacity utilization was 50% again. Again, a lower transmission volume is attributed to, again, the same reason, DMTS supplies. The polymer production stood at 68 TMT as against 95 TMT in last quarter. The production has decreased due to operation of plant at reduced load to manage shortfall of volume arising due to supply disruptions. LSC production stood at 247 TMT as against 228 TMT in previous quarter. The capacity utilization was 69%. LPG transmission remains almost flat, 1,101 TMT as against 1,100 TMT in the previous quarter, and the capacity utilization, that's 115%. On consolidated financials for Q3 2023 as compared to Q2 financial year 2023, the consolidated turnover in current quarter stood at INR 35,870 crore versus INR 38,674 crore in previous quarter, down by 7%.
PBT in current quarter is INR 662 crore, INR 660 crore as compared to INR 1,675 crore in Q2 financial year 2023, down by 60%. The PAT is INR 414 crore as compared to INR 1,315 crore in Q2 financial year 2023, down by 69%. consolidated financials for nine monthly basis, the consolidated turnover for nine months up to Q3 financial year 2023 stood at INR 1,12,045 crore versus INR 65,373 crore in corresponding period in previous year, up by 72%. The PBT up to Q3 financial year 2023 stood at INR 6,567 crore as against INR 11,088 crore in corresponding period of previous year, down by 41%.
The profit after tax stood at INR 4,982 crore for nine months in financial year 2023, as compared to INR 8,802 crore in corresponding period of previous year, down by 43%. In terms of CapEx and funding, GAIL has incurred CapEx of INR 2,311 crore during quarter, the current quarter, and INR 6,278 crore on nine monthly basis from April to December, mainly on pipeline, around INR 3,648 crore, petrochemicals around INR 675 crore, operational CapEx around INR 620 crore, CGD projects around INR 160 crore, CNP INR 210 crore, equity contribution INR 965 crore. We have planned to spend approximate INR 8,000 crore in the current financial year on pipelines, petrochemicals, CGD, equity, et cetera.
During the quarter, GAIL has issued funds, has raised funds of INR 1,575 crore by way of issuing bonds for five years at a very competitive rate that is at the rate of 7.34% per annum, which is better than even the AAA rated corporate bonds, PSU bonds, and the rates discovered of various PSUs at the time in the range of approximate 7.45% to 7.59%. The total outstanding loans as on 31st December is INR 10,164 crore. For GAIL CGD business, GAIL is having infrastructure of 124 CNG stations and 234,000 DPNG connections. During the financial year 2022, 2023, five new CNG stations around 32,700 new DPNG connections were added.
The physical volume supplies to these GAIL CGDs is 0.22 MMSCMD during the year. In the next two years, GAIL's target to add over 100 new CNG stations and 250,000 DPNG connections. Let me talk something about the GAIL Gas. During the current quarter, the gross turnover stood at INR 2,623 crore as against INR 2,716 crore in Q2, decrease of 3% and again, mainly due to the decrease in average sales price. The profit before tax has increased to INR 112 crore in current quarter as against INR 101 crore in previous quarter. Profit after tax has increased to INR 87 crore as against INR 71 crore in previous quarter. The physical volume during the quarter remains flat, almost 5.5 MMSCMD.
During the Q3 financial year 2023, eight new CNG stations and 9,500 new DPNG connections were added. During nine months period ending December 2022, 19 CNG stations and 39,000 DPNG connections were added. Out of this, 10 CNG stations have been added at Bangalore locations. GAIL Gas, along with its joint venture subsidiaries, has infrastructure of 818,000 DPNG connections and 358 CNG stations, out of which Bangalore contributes 79 CNG stations. 228,000 DPNG connections as on 31st December 2022. With respect to project performance, Mumbai-Nagpur-Jharsuguda pipeline is 1,755 km. Activities are moving in full swing, Mumbai-Nagpur section is expected to be completed by May 2023.
Regarding Jagdishpur Haldia Bokaro Dhamra Pipeline, 50% of, that is 1,770.0 km out of total pipeline length of 3,384 km have been commissioned, remaining part is expected to be completed by June 2023. The SFPL, the trunk line is likely to be completed by July 2023. In relation to PDH PP plant at Usar, presently the tendering activities, other enabling activities are in full swing and project is slated to commission by April 2025. Regarding PP plant at Pata, various LLIs, tendering activities and site enabling activities are in full swing, project is slated to be commissioned by April 2024. Just I wanted to give you some outlook on our various segments.
As I shared, the natural gas transmission business, because of these supply cuts in current financial year, almost 10% transmission, almost approximate 10%, there is a downfall of 10%. In view of reduction of APM supplies for compressor fuels, there is impact of another 0.45 MMSMPD. These two are the regions which has impacted, and we hope that next year we will be able to achieve our normal normative volumes, which we could not do this year. Both have impact of almost INR 1,000 crore this year, and hopefully this will be taken care in the next financial year. Coming back to the gas marketing, this year we faced because this was a lot of certain activities, geopolitical situation, GMTS supply. We are in the market for sourcing of gases.
We are in discussion with various suppliers, we hope that we will be able to enter into a deal for, you know, meeting our increasing supply, increasing demand for our downstream customers. Apart from that, we are also in discussion with GMTS so that the supplies is restored to a normal level. As supplies to the Jagdishpur Haldia Dhamra Pipeline is increased, our average tariff realization has increased during this year, which used to be 39.78, has gone up to 43.46 per MMBtu. Going forward, the supplies to the Jagdishpur Haldia Pipeline or rather use of multiple pipelines will increase, therefore there will be further increase in tariff realization.
The tariff for Jagdishpur-Haldia pipeline as on date has been worked out considering the phase I CapEx, which was approximate INR 2,000, and if we reduce the subsidy around INR 1,200 crore to INR 1,300 crore , whereas total expenditure net of subsidy is around INR 10,000 crore . Once the regulator takes care of this fact, the tariff for Jagdishpur-Haldia pipeline is currently around INR 65 per MMBtu, will certainly going to be doubled. We have already filed our tariff petitions with PNGRB. PNGRB is reviewing the same. We have also filed the tariff in line with the revised parameters which notified by PNGRB and also with respect to integrated tariff notified by PNGRB. PNGRB is reviewing the same. Just to take you through and recap, the PNGRB has recently made changes in their tariff regulations.
I will like to highlight some of them. Earlier, the volume ramps up benefits were available for first five years from the date of commissioning of pipeline. Now that has been increased to 10 years. Apart from that, what they have done, it will be available phase wise. Our at least three pipelines will have benefit of that. That is KKMBPL, Dabhol - Bangalore, Jagdishpur Haldia pipeline. Second, PNGRB, through an amendment to tariff regulation, has also given that the benefit of reduced. Basically, GAIL has adopted the reduced corporate tax rate. Earlier there was apprehension where tariff will be revised, so because earlier tariff normative rate was considered over 33% to 34%. Apprehension was that will be set off to tariff through adjustment and revision of tariff for by 25%.
PNGRB has given that benefit that it will only be adjusted from the financial year 2022 to 2023. That significant benefit is now available. Third, the PNGRB, through its amendment in tariff regulation, has also allowed the benefit of transmission loss, a normative loss 0.1% without any subject to adjustment. Basically, it will be available as your throughput. Fourth, PNGRB, if you have gone through the regulations, in terms of PNGRB regulations, the volume denominator is considered as normative, whereas fuel consumption is considered on actual basis. PNGRB has again revised the regulation. The fuel consumption will also be almost normative. In terms of regulation, it will be subject to maximum 2% of volume division considered instead of actual.
One more regulatory amendment which PNGRB has done that earlier miscellaneous income were used to be set off through the expenses. Now, the miscellaneous income will not be set off until and unless we reach to the level of 12% post-tax return or 75% volume, not post-tax, 75% volume. That 75% volume anyway provides the 12% post-tax return. As we share in the last on 31 May , 2022 during the analyst meet in Mumbai on 31 May that we will be getting at least INR 2,500 crore of marketing spread in gas marketing. I'm happy to share that in nine monthly basis, in spite of all those challenges, we have achieved at least INR 2,500 crore of marketing spread.
Primary reason is that out of 5.8 MMTPA volume we source from the United States, almost more than 50% we have signed on Henry Hub linked contracts. Those kind of risk has been mitigated. More and more customers are coming forward to sign Henry Hub linked contract, and that will further taken care the risk of basic risk will further be taken care. GAIL is now active participants to exchange. We are sourcing the good amount of gas from exchange and i n last Q3, we have sold almost 120 MMSCF of gas from exchange at a very competitive price. One more positive which is going to happen in next year that we sold 0.5 MMTPA of gas in international market for five years. That five years is already over.
Those eight cargos, half MMTPA gas will be extra available to be sold in the domestic market. I think this is broadly from my side. One more positive which will come for LHC segment, as we all know that Kirit Parikh Committee has recommended for a cap price for LHC, which is around 6.5. Currently, the price is around 8.57. Input cost for our LHC has gone up significantly. If these recommendations are expect, accepted, then, assuming all parameter remains same, it has a significant upside around INR 1,000 crore to INR 1,200 crore. Thank you very much.
Sir, shall we open the floor for the Q and A session?
Yes, please.
Thank you, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may please press star and one on their touch tone phone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have the first question from the line of Probal Sen from ICICI Securities. Please go ahead.
Thank you very much for the opportunity. Good evening, sir.
Good evening, Probal.
Yeah. Thank you for the detailed, you know, explanation of why the results have been a bit weak for this quarter. That is very useful. I have two questions. One was, sir, the disruption in the Gazprom supply happened a few quarters back, from what we understand. Volumes, images have fallen from about, I think 114 MMSCM levels to about 107, 108 for the last three quarters. Just wanted to get a sense of the additional three to four MMSCM fall in this quarter. That is a result of what you were talking about when you said you had high priced cargos, whereas the current prices have dropped. The inventory loss is also one of the drivers for the volumes not being sold, and therefore transition volumes were also lower this quarter.
Probal, I think, just don't look, don't see that this quarter independent. We actually started releasing cuts to downstream customer, in fact, sometime in August, July second fortnight, and also we have ramped down our Pata Petrochemical sometime September, and then for a moment, for a few or for almost 30 days or so, we stopped during October. The impact in Q2 was there, but not to the that extent. The full impact of supply cuts actually has happened in Q3.
Okay. Okay. Okay.
That is the reason. If you see, compare quarter two to quarter three, you will not arrive at that figure. Quarter two was not fully comparable. Supply cut was for a partial period. Pata was running. It is quarter three which has seen the actual impact.
Got it, sir. Perfectly clear. The second question was, around the, you know, measures and the things that you spoke about on the tariff front. Obviously, all of these measures will be particularly positive. Just, you know, is it possible to put any sort of percentage? Now, you mentioned of course about blended tariff going from INR 39.8 to around INR 43.5 already.
Actually It will not. [crosstalk] Yeah. I got you. It will not be right idea for me to give you a exact number, but because it is regulator to decide. If you talk me on a ballpark figure, because there are a lot more adjustments apart from this.
Sure.
There will be CapEx adjustment, OpEx adjustment, pass over recoveries. If you talk to me independent of these factors, it is INR 10 per MMBtu at least.
Got it. Got it. As just as an indicative, range. That is very useful. Last question.
For only these factors I'm taking independently.
Got it.
That is coming n ot less than INR 10.
Got it.
Yes, of course. The regulator can always, you know, sort of disallow some expenses here and there, and so on. That can happen.
They allow full allocation. Okay. Almost 25% of current value.
Got it, sir. The last question, if I may, on the, you know, petrochemical plants, utilizations have all been, you know, dropped quite a bit. For FY 2024, given that we do have some visibility from maybe from some domestic sources, and I think earlier guidance was that volumes ideally should go up, improve from these levels, gradually. What sort of utilization level should we be building in, sir, or should we be working with for the petrochemical business? Assuming some gas once again starts to become available and you don't have to sort of cut utilization too sharply for FY 2024.
For FY 2024, look, we are currently running our part of petrochemicals at almost 40%. The first reason is that we want to continue to supply to end consumers.
Sure.
At least we are able to satisfy them, they continue to remain with us. As far as your question, what level we look for 2024, we are actually working on sourcing of gas, we are hopeful that we will be successful. Why should I give you a number of 40 to 80 or 70? We intend to run at 100%.
Got it, sir. Got it. Fair enough, sir. Fair enough. I guess we know that answer as we go along. Thank you so much. I'll come back if I have more questions. Thank you so much.
Sure.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We have the next question from the line of Amit Rustagi from UBS. Please go ahead.
Sir, thanks for taking my question and explaining all the results in quite detail. Sir, my first question relates to the tariff, you highlighted at around 25% tariff increase. Are we looking at the integrated tariff to be 25% higher than the current realized one? Broadly, if we can assume that this will have 15 year or 20 year of life or what are the assumptions in that?
I have not considered any integrated tariff benefit which will be available. As I said, I have only considered those factors which have come through regulatory amendment and by putting on the model what kind of impact they may have. I indicated the ballpark impact, if I say for INR 40 average tariff today, they may have around INR 10 impact of these factors. Integrated tariff, when it comes, it will have a different kind of benefit. Apart from the increase in revenues, it will also have benefit of market expansion. We as a company look integrated tariff as a market expansion tools because now market is in, it's away from source, away from the western region. It is more in a northern eastern part of the country.
We look integrated tariff from different perspective apart from the benefits which are available as an integrated tariff. That we have not worked out.
Sir, what are the expected timelines? Can we expect all these tariff orders to come before 31st March ?
Yeah. We have submitted our tariffs. As we understand for PNGRB, they are in the process of making Public Consultation Document. If based on our understanding, if everything goes right by end of this month or maybe next month, Public Consultation Document will be available, and that will give you fair idea about the tariff submissions, tariff moderations, or what way the tariff will go. Let me not focus on to this. Actually, this anyway will happen. What you as an analyst or investor should look, as I said, Jagdishpur-Haldia pipeline tariff has just been notified, which was notified sometime in 2018, 2019, considering only CapEx of around INR 1,500 crore. I don't have right figure right now because INR 2,000 crore were total CapEx then the subsidy was reduced from that.
Whereas total CapEx for this pipeline is INR 15,000 crore. INR 5,000 crore if you reduce subsidy, INR 10,000 crore we have almost incurred. Now, on NPV basis for last three to four years, tariff is going to go substantially up. Currently tariff is INR 65. Even if you consider on a conservative side, on independent pipelines will not less than INR 125 INR 130.
Okay, sir. Got it. Got it. You have already fared in detail.
That you factor because that is the major thing. Let us forget the tariff regulation amendment, the integrated tariff. This is anyway available to us. Apart from that, KKMBPL tariff is also due for revision. The public consultation for the same was done in 2019. It has also good upside. The Chainsa-Jhajjar pipeline, Dadri-Bawana pipeline, for which consultation also was done in 2019, we expect there will be some kind of upside available, then the tariff regulation amendment, and then you come to the integrated part.
Okay, sir. Got it. Sir, my second question relates to the US LNG contracts. Now you mentioned that 0.5 million ton additional LNG we'll be bringing. In total, how many cargoes we are likely to bring in 2023 in India? What is the average landed price, including the spot transportation cost, we have? How much this is like over and abov , 2022 cargoes?
We have almost 90 cargoes from United States, and we intend to bring all of them to India.
This year.
Coming back to your transportation cost, actually it depends because we are not directly bringing all these cargoes through our our charter ship. We are using lot of optimization mechanism, like time swap and the destination swap, FOV sales and VS buy, which gives us a lot of flexibility and saving in transportation costs. That depends on what kind of deal we click. If you talk, we have, you know, normative transportation tariff, it ranges from $2 to $2.5.
Okay. Sir, given this scenario, now shall we expect that CGDs, which were getting almost 50% to 60% cut in the US LNG contracts tied up with GAIL, they will start to get the full LNG because you will bring more cargoes in 2023?
Right. CGD were not getting cut because of the US gas.
Yes.
It was because of GMTS.
Okay. Their contracts were, I think, linked to Henry Hub, right?
No, no, no, no, no. Most of CGDs, t here may be some, but we have not put the cut because of the Henry Hub.
Okay, sir. Got it. Sir, I'll come back in the queue. Thank you, sir. Thanks for taking my questions once again. Thank you.
Thank you. We have the next question from the line of Puneet from HSBC. Please go ahead.
Thank you so much for the opportunity. My first question is with respect to the, you know, the loss that you booked on the transmission, INR 400 crore. When do you think you'll get the approval from PNGRB to book it back in as income in your P&L?
Puneet, let us not look it as a loss. This year we booked more expenditure of INR 400 crore. Actually, the tariff revision takes place in a period of five years, and we can go to regulator even earlier if there is a significant change in parameter. We have already gone to the regulator for considering this fuel expenses apart from other factors. What I've said earlier also, the tariff petition has already been submitted. They are under process. They are reviewing. A PCD is likely to be available maybe by next month, if not this month. Normally it takes three to four months to PNGRB to finalize the tariff. Safely next financial year, April or May, we will be able to see the revised tariff.
You can book it back in your P&L.
Right. Yeah. Revenues are available. Actually, what is happening, it has a double impact. This year we have booked, say, INR 400 crore expenses extra, which is not available. Next year, this INR 400 crore will not be there because now we have a time to source cheaper gas. Because that time the prices were $40. Now you can buy gas at $20, $15. Those extra expenses will not book next year. Apart from that, we will have increased revenue on account of revision in tariff considering this apart from other aspects.
Okay. That will be booked as one-time income or, is that, will that be spread over a longer period of time and revised?
It will be over economic life, because when they work out the tariff, they spread it over economic life. INR 400 crore will not be available at one time in next year. INR 400 crore expenses may not be there next year, but the revenue will be available in a period of economic life depending upon the life of the pipeline. In this case,[inaudible] which has a life till 2033.
Okay. Understood. My second question is, how much gas is now going via the Jharsuguda pipeline?
No, no. Nothing. I mean, pipeline is still under construction.
Okay. Nothing. That, the normative tariff that you talked about will start, You're saying that, in fact, that number will go up later only.
Clearly. That is without pipeline, there will not be any change in tariff of Mumbai-Nagpur-Jharsuguda pipeline.
Okay. On the inventory loss of INR 1,100 crore, at what LNG price was that determined? Is there a risk of more loss going into this quarter as well?
We have almost booked that because we purchased around $40. I don't have the exact data. Already we have booked, we have valued the inventory as on 31st December price, which was around $20, $22. Majority of loss we have booked. We don't expect that it will happen again.
Okay. There's still a re-reduction. You said it's about $14, $15. Five dollars further down, right?
No, no, no. Already, say, $21, $22 we have valued it. What will happen now, if you see it will $14, $15, or if price increase, spot price increase, it may not, we may not require to book any loss. $20 $21 is not a very significant price movement.
Understood. That's very helpful. That's all from my side. Thank you.
Yeah.
Thank you. We have the next question from the line of Pinakin Parekh from JPMorgan. Please go ahead.
Yeah. Thank you very much, sir. My first question is just trying to understand the inventory loss better. Essentially the loss arose because GAIL took an open position without a back-to-back contract with a buyer, in this environment, and hence, there is a price loss?
No, no. You know that in during October, the prices of LNG were hovering around 45, and we purchased at a better price, not at 45, lesser than the $45. You also know that on quarterly basis, fertilizer bidding comes. Okay? We purchased three cargo and we got the contract. We supplied some of the quantity to them, but in view of significant volatility, the fertilizer came out with another bidding in December. They did not take the volume at that price. That is how that volume remains. We did not take any speculative or open position.
Certainly, this is a continuous affair that, you know, fertilizer bidding comes, you have to quote there, and based on your likely volume available, you purchase that. What has happened by December, the prices went down, so there was less offtake.
Essentially, sir, with the fertilizer segment as a buyer, the price risk is essentially borne by GAIL. Because if tomorrow there is another price drop, because LNG prices are expected to remain volatile, then that inherent volatility will be there on a quarter-to-quarter basis, especially in an environment like this. There is no price sanctity with the fertilizer segment.
No, no, no.
No, no. No, no. This was on a routine fertilizer supply, which is 90% we are supplying on our contract, there is no volatility involved. There is no price risk involved. It is only when we bid, when we bid through EPMC, then we take positions. This has never happened in past. This is one of situation which has happened that price went down from $45 to $20. That's why it happened. We also have seen the market, how market behaves, accordingly we will be taking position, but we also don't expect that prices will move such like the $45 to $20, because this was a unique situation.
Sure, sir. My second question is just trying to understand the Petrochem segment utilization better. Now, if oil prices were to remain at this level through the year, and hence, and Petrochem prices were to remain at these levels, then at what spot LNG prices can utilization go back to 100%? At $20, can you operate at 100%, or you need a lower LNG, or you can operate at a higher LNG?
If the price, petrochemical price remains at current level.
Mm-hmm.
We will be able to operate our plant at 100% around $16+ .
$16. At $20, $21, then the utilization will come up.
That's what I was telling in.
Understood.
Response to earlier question, that why we expect 40% to 80%. We expect 100% because we don't expect price to remain at that level.
Understood. Understood. That's very clear. Thank you, sir.
Thank you. We have the next question from the line of Sabri Hazarika from Emkay Global Financial Services. Please go ahead.
Good afternoon, sir. My first question is regarding the LNG scenario right now. How has been the experience so far in terms of, like, getting long-term deals as a replacement to Gazprom and also to add to your portfolio? There is some news regarding, I think that you are almost close to signing a deal with ADNOC also. Just wanted to know some idea on this.
My colleague, Mr. Kaviraj, he's Executive Director, LNG, will share the details. News, let us not go by news. We are not only in talks with ADNOC, we are in talks with lot many parties, and probably we'll be getting a good deal. With a specific answer to your question, I request Mr. Kaviraj to tell you.
Good afternoon, everybody. As our Director, Frans, has, rightly said, we should not go by, news articles. Fact remains that, we are actively in discussion with a couple of long-term, LNG suppliers. The discussions are at various levels with, different parties. Since this being a, you know, a long-term contract, and market is also quite volatile, i t is taking more than expected time, but we are expediting it. Hopefully, we should be able to conclude at least one contract shortly.
Right. The second question is over on your overall gas volumes outlook. We have seen the dip, but I think with spot LNG prices also cooling down, if we look into the numbers which have been stated by PLNG also, I think they have also been back to something like 80% to 81% utilization. Are you seeing better numbers in Q4, and what is your guidance for FY 2024 as a whole, both transmission and marketing?
Let us not immediately look that Q4 will have miracle. We expect that Q4 certainly will be better than Q3. In 2024, we at least are hoping that we're back to normal.
Normal as in, 110+ for transmission?
Yeah. We are still running 104, 105, so 110. Why 110? Why not 113, 14?
Okay, sir. Your marketing EBITDA number is also, like, based on, say, 9,500 volumes, right? Of INR 2,500 crore number that you have given.
Yeah. Whatever number I have given for nine months is based on the current level, which are actual numbers.
Right. Right. But minimum INR 2,500 for FY 2024 also, you are pretty confident?
So any way [foreign language], what happens, when I made this statement of 31st May 2020 Investors and analyst community has concern about gas marketing that you cannot, you don't look at it like a sustainable segment. We said in that meeting that you can look for at least INR 2,500 crore PBT from this segment. Under the current volatile market, we have been able to maintain INR 2,500 crore in nine months. We expect that in 2024 we'll do far better than this, particularly because we will have more supplies. That's what we expect. Second, we have signed lot of back-to-back contracts, thereby avoiding the price risk. We expect that we should do better as compared to this year, even in gas marketing.
Okay, sir. Fair enough. Thank you so much, and all the best to you.
Thank you. We have the next question from the line of Yogesh Patil from Centrum Broking. Please go ahead.
Thanks for taking my question, sir. The question is related to current gas trading environment. Looking into the January average Henry Hub prices, which is much lower, and India's landed price of Henry Hub would be lower than $9 per MMBtu, considering the $2.5 per MMBtu transportation cost. What we understand, sir, the same gas is being sold to various consumers at $12 to $13 slope to Brent. It suggests that GAIL is making handsome trading margins on Henry Hub. Is it right understanding?
As I shared with you, more than 50% contract for Henry Hub gas, we have signed back-to-back. Irrespective of Henry Hub level, we remains neutral. Okay? This we signed in order to avoid the price volatility, make the segment consistent. Remaining 50%, yes, there may be upside, there may be downside, what we do, we take positions in paper market, because in order to avoid this price risk of crude versus Henry Hub volatility, we take time to time positions in paper market we avoid those risks and try to remain consistent. We don't see any windfall or any extraordinary profits, certainly we will be able to maintain our profit.
Okay. The second question is related to, again, INR 1,100 crore inventory losses on the trading side. Can you please provide the same like-to-like inventory losses or gain in the previous quarters, if happened in the Q2 FY 2023 or Q3 FY 2022?
I don't have any figure ready-made. I can say you this was, I think not, but even if it was, it was not significant. That's what I'm not able to remember. There was nothing which was considerable. I think it was not there, but it was not considerable inventory because significant thing anyway we ourselves shared with you.
Okay, sir. Thanks. Thanks a lot.
Thank you. We have the next question from the line of L Ramesh from Nirmal Bang Securities. Please go ahead.
Good evening, and thank you very much. Can you hear me?
Yeah. I can very well hear you.
Going back to the tariff regulations and the outlook for the gas transmission business, when you indicated the current tariffs and the potential increase in the tariff, these are gross tariffs, you know, before operating expenses in line with the regulator announces, or these are at the EBIT level. How should we read that?
These are gross.
Gross margin. Okay. If you're looking at the economic life, according to the new regulations, the economic life is 25 years. This new economic life of 25 years will apply only to the new pipeline and the HBJ will remain at 2033?
Let me tell you, economic life always has been 25 years. There is no change in regulatory provision. What is the regulatory provision is that, One is regulatory provision, one is in practice what PNGRB is doing. When PNGRB notified tariffs in 2018 and 2019, even though in terms of regulation, the economic life is 25 years, for the purpose of computation of tariff, they considered 30 years. Second, there is another regulatory provision that after completion of economic life, there is a provision for extension of economic life by 10 years. If you see, HBJ was first commissioned in August 1987. If you go by those regulations, the economic life was over in 2012. Regulator has increased the economic life, say, around to 2033. It means they have increased the economic life more than twice.
economic life, provision of economic life increases there in the regulation and which is being done by PNGRB. Whenever they work out the tariff, if required that economic life is over, they increase after assessing the health of the pipeline.
Okay. I know because one of the other companies in transmission suggested that the regulator will look at the entire gas grid and fix an economic life uniformly for the entire system. That's why I asked that question. You are saying that.
There's no entire system as on date. As on date, pipelines are individual pipelines. If you see economic life of HBJ, I say around to 2033. If you see Dabhol- Bangalore, it is around 2038. AKMBPL around 2038. It is pipeline to pipeline. I'm not aware which grid they are talking about, but what is the current situation I have shared with you.
Okay. If you are looking at your petrochemical and LPG and hydrocarbon business, when you talk about the potential upside, say, in LPG and hydrocarbons from the reduction in APM gas prices, what is the kind of outlook you have for your end product prices, given that there is some volatility in oil prices and LPG markets? Do you expect the current end product prices to sustain? What is the outlook there?
Actually, I cannot predict about LPG price, what will remain in future. What can I see, current prices. If you see historically the winter LPG price goes up, but this is the unique year where LPG price has gone down in winter. If nothing happens, this price may be sustainable price, but future I cannot predict what will be the LPG price.
One last thought. Since OMCs have got some compensation for under the current LPG, is it possible that you can also make a similar claim, or because it's based on the increase in APM gas prices and this LPG is going to the, you know, public distribution system, is there a case for GAIL to also make a claim there?
I mean, no proposal is there. No such proposal is there with us.
Okay, thank you very much. I'll go on this.
Thank you.
Thank you. The next question is from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead.
Thank you for the call, sir, and the detailed answers. Just one question from my end, and this was regarding the MMSCMD supply. I think you were sharing around your strategy around trying to kind of get your long-term contracts. Can you just give us a bit more detail of, by when this eight, nine MMSCM of volumes you'll be able to kind of fully get back on a long-term basis?
Actually, we are also not clear when we'll get back. We are pursuing or in discussion with the supplier. Those outcomes still are inconclusive. We are still under discussion. Until those are concluded, it will be difficult for us to predict when we get the full supplies.
Sir, I was referring to not just from the original supplier, but to just the other factors, other contracts you are trying to kind of negate of this effect. Is there a thinking process around when you can at least get to long-term supply contracts with some other suppliers to kind of negate of the pain on GPMS ?
One is GMTS, which we discussed. Anyway, India, Indian economy is needing more and more gas. Even if GMTS would not have happened, we were in the market for sourcing gas. GMTS circumstances has forced us more that not only we source to increase market demand, but we source little more than that, so that even if the GMTS comes, even if GMTS is getting delayed, we are able to serve the market. Even, even if GMTS comes in full, we have flexibility to trade in international market. You must have seen that in past we have seen, we have sold almost 10 MMSCMB of gas, which is almost equivalent to GMTS volume in international market. That ability we have because of the FOB contract from United States.
we are in a better position that even if we source equivalent to GMTS, little less than GMTS, apart from increased demand, we will be able to not only supply to our Indian market, but we will be able to play more in the international market.
Got it. Is it fair to say whenever your contracts come in and you are able to source alternative suppliers, it will be mostly linked to Henry Hub kind of contracts rather than any oil linked contracts?
No, no. We are not particular about Henry Index. We look for as a portfolio, as a gas major in the country, we look for all kind of index as long as the prices are affordable to customers in India.
Got it. Okay. Thank you.
Thank you. Participants, please note, may we request you to limit your questions to one participant. Thank you. We have the next question from the line of Aditya Suresh from Macquarie Asset Management. Please go ahead.
Thank you, sir, for the time. I have two specific questions on gas marketing. First is on the entire kind of supply issue, right? Obviously the Gazprom contract is 2.5 million tons. Our US supply is 5.8 million tons, right? I guess what I'm trying to get at is how much of your US volumes becomes available to offset Gazprom and by when? Or if I had to rephrase it differently, you said that your US volume, about half of it is kind of free. That would then tell me that you can offset fully your kind of Gazprom exposure by bringing those volumes to India. Can you just give some understanding of that?
How much, by when can the, your US volumes, will they kind of go off these hedges, where you can offset the exposure from Gazprom?
We are not clear what you mean by 50% is free. Can you just elaborate?
I think in your remarks you did mention something about some of our US volumes are already kind of placed, some of it is hedged, et cetera. I was a bit unclear about the comments that you made. The broader question, sir, is simple. Gazprom, your exposure is 2.5 million tons.
Yeah.
It's a few cargos right now. US, your supply contract is 5.8 million tons. By when do you get at least 2.5 million tons available to offset the Gazprom exposure?
Yeah. Efforts are on, but since we have to, tie up on a long-term basis, it'll take its time.
My understanding, sorry to push on this, but my understanding about the US volumes you have placed also were more short-term hedges, maybe at best about a year in terms of some of these time swaps, these station swaps, et cetera. Is that understanding incorrect then?
No. We are not able to understand you first. I mean, don't link hedging and the physicals.
How much of your US volumes can you bring to India today and in FY 2024? All volumes.
All we will be bringing to India. All 90 cargo, approximately 88 to 90 cargo will all be bringing to India.
Okay. With that, can you therefore then fully offset the Gazprom exposure?
No.
Okay.
Otherwise, we would not have, our sale would not have gone down, isn't it?
I guess, sorry again to push, but my real question is that clearly you're not bringing all the US volumes to India today, right? In FY 2023, some has been sold in the gas market as well.
This financial year, we are not bringing all because eight we had already sold in the international market. That contract is over. Those extra eight cargos or half MMTPA will be available. That is extra from US, which is available to country.
Okay. Just one final piece is in terms of your gas marketing volume mix today, are you able to kind of distinguish between how much is back-to-back in nature?
We have 14 MMTPA of portfolio. Let me give you full breakup. We have 14 MMTPA of portfolio, 2.5 or you can say 2.85 at peak. Gas form is not available. 11 billion Rough gas almost is back-to-back. We have signed almost 50% of out of 5.8 [inaudible] on back-to-back. Okay? That is around, you can say, seven million ton we have on back-to-back out of 11, if you reduce the gas from. Remaining we have contract on different linkage, and we are supplying, say, purchasing [inaudible] , supplying our crude, but then we are taking positions to mitigate those risks.
Okay, thank you.
Thank you. The next question is from the line of Vishnu Kumar from Spark Capital. Please go ahead.
Good evening. Thanks for the time. You mentioned that you're working on some LNG deals. What would be the indicative slopes that probably we might be getting if we conclude a deal? What is the current running rates like?
I think we will not be able to share even after conclusion.
Okay. Sir, for quite some time we've been sourcing a lot of spot LNG for our petrochemical division. Let's say if you are bringing half a million ton of the US gas to India, or let's say if you conclude a deal, would we insulate our petrochem division going forward with 100% some kind of a lock-in and not rely on spot gas?
You are right. we are looking for additional gas. That's how we are looking for additional gas. We are also not relying on a spot gas. Let me be very frank with you. It is only because of GMTS, which is substantial volume has gone down, 10 MMSCMD. One of the internal consumer got affected. Earlier also we were not running part of petrochemical on a spot. Nobody will do that. No planning is done on a spot. Now unfortunate event has happened, and we are looking for another alternative long-term basis.
Understood. Wherever we get for the next volumes, we will be locking 100% at least if our GMT is not available.
We always do that. It is only currently because of all of sudden it has happened. Otherwise, we never do run plant on a spot.
Got it. Finally, for volumes to pick up in the country, what level of pricing do you think at least you see the gas demand coming back? We've seen country level demand also come off a little. What level of spot LNG, let's say, if you see, if you think, maybe $14, $15 or $10 you start to see some pickup in demand?
It's a difficult question at what level because every consumer has a different appetite level. If you think of fertilizer, it depends what, at what level fertilizer is imported in the country. Power, you know that it doesn't come under merit. RLNG has a challenge. CGD, it depends on alternate fuel. We get source diesel because they replace largely the diesel. For them the crude is the alternative fuel. Every consumer has a different level of affordability, and that's how we in our portfolio keep all kind of gases so that we takes care of most of the customers. No single price I can say which is actually okay for increasing gas market, because we look for all kind of market and try to satisfy the requirement from our portfolio.
Got it, sir. Just one to confirm the previous answer that you mentioned, you expect that the PNGRB tariffs for your major pipelines to be done in the next couple of months, is that right?
We expect, at least by April it should happen because already we have submitted. They normally take three months and, we are also pursuing so that it actually is notified, say, by April. If not April, mid-April or end of April. We're hopeful that it will be done.
Got it, sir. Thanks. All the best.
Thank you.
Thank you.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Varatharajan Sivasankaran for closing comments. Over to you, sir.
Thank you, Michelle. In case you have any comments to, final comments to make, please go ahead.
It was pleasure talking to you all. If we could not answer any of your question or some of the participants might have missed, we are always available offline and happy to answer your questions.
If I may, I had one last question.
Yeah, yeah.
In terms of the new regulation in terms of what the government has highlighted for KG Basin and high pressure rate and pressure gas, does it reduce our appetite in terms of bidding, in terms of volumes or like does it reduce our maneuverability in the overall scheme of things in terms of placing those volumes?
I will ask my colleague Sumit to answer this, the ceiling on HPHT. Or you can repeat for the tape.
Can you please repeat the question? Sorry, I missed the question.
Sir, like, obviously we have reduced the marketing margin or restricted the marketing margin. Does it reduce your maneuverability in terms of placing those volumes, and does it reduce your appetite in terms of bidding for those volumes?
Can you say, as per the new HPR or the HPSP order by the government of India, the priority in case it reaches the pro rata distribution, the priority is given to the CNG PNG segment and then the fertilizer segment. Of course it does ensure availability of fuel for as far as GAIL is concerned for our own CGB consumption to the extent of CNG PNG consumption. Yes, it does decrease the maneuverability for the trading segment and even our own consumption because the priority sector will get a higher priority.
Perfect, sir. Thank you, sir. I wish to thank all the participants and the management, led by Antique . Thanks for taking time out to join this call. Have a nice day everyone. Thank you.
Thank you.
Thank you. On behalf of Antique Stock Broking, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.