Ladies and gentlemen, good day and welcome to Q3 FY 2022 earnings conference call of GAIL (India) Limited, hosted by IIFL Securities Limited. As a reminder, all participants' line will be in 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 zero on your touch-tone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Harshvardhan Dole from IIFL Securities Limited. Thank you and over to you, sir.
Thank you, Heman. Greetings, everyone. On behalf of IIFL Securities Limited, I welcome you all for the third quarter earnings call of GAIL. Before we start the call, I'd like to congratulate GAIL for a stellar performance. I, you know, would like to introduce the senior management team of GAIL, represented by Mr. Rakesh Kumar Jain, who will be first giving his opening remarks, subsequent to which we can have the floor open for Q&A. Over to you, sir.
Yeah. Thank you, Harsha. Good afternoon to you from IIFL, and my dear friends from investors and analyst community. I have with me my senior colleagues, Executive Director of Business Development, Executive Director CSP, Executive Director of Petrochemicals, Executive Director of Finance, Executive Director International Sourcing. We have all colleagues available here to answer and other senior friends. We are thankful to you for showing the keen interest in performance of GAIL. The results for and up to third quarter have earlier been declared today, and I'm sure you must have gone through the results and must be happy with GAIL's performance in last quarter in particular and nine months in general.
I just take a pleasure to state that for up to Q3 2020, GAIL has achieved highest ever turnover, highest ever PBT, and highest ever PAT. To give the financial highlights, GAIL achieved gross turnover of INR 25,688 crore in current quarter. That is the Q3, as against 21,477 crore in Q2. This is an increase of 20%, and this increase is primarily driven due to higher natural gas price, which is on an average around $1.6 per MMBTU. Higher LHC price, which is around INR 12,700 per MT, and higher petrochemical prices around INR 7,000 per metric ton.
If you see on nine-month basis, GAIL achieved turnover of INR 64,517 crore in financial year 2022 versus INR 41,057 crore during corresponding period in previous year. That is up by 57%. If we talk of profit before tax, increased to INR 4,308 crore in Q3 financial year 2022, as against INR 3,682 crore in Q2 financial year 2022. Increase of 17% primarily due to improved marketing spread, better prices of petrochemical LHC, and improved operating efficiency in petrochemical and LHC. On nine-month basis, GAIL achieved profit before tax of INR 10,044 crore in financial year 2022, as compared to INR 3,774 crore during corresponding period in previous year. This is up by 166%.
Profit after tax jumped to INR 3,288 crore in Q3 financial year 2022, against INR 2,863 crore in the Q2 of financial year 2022, an increase of 15%. On nine-month basis, GAIL achieved profit after tax of INR 7,681 crore in financial year 2022 versus INR 2,983 crore during corresponding period in previous year, and this is up by 158%. Coming to performance, if we talk of gas marketing, gas marketing stood at 96.56 MMSCMD in Q3, as compared to 97.72 MMSCMD in Q2 financial year 2022. Gas marketing profit increased from INR 1,073 crore to INR 1,745 crore, mainly due to increased gas marketing spread.
Now if you talk of this gas marketing, you know, likely volume in future, if we talk about coming two-three years, next year we expect the volume to go up by five-six MMSCMD if at some point of time. If you consider the average, it will be around four MMSCMD in coming next two-three years. Coming back to the natural gas transmission, it stood at 114.28 MMSCMD as against 114.32 MMSCMD in Q2 FY 2022. The capacity utilization remained at 55% in both Q2 and Q3. The gas transmission volume is expected.
If you talk of futuristic things, the gas transmission volume is expected to increase by 5%-6% per annum for the coming couple of years. This increase will primarily be driven by increase in supply to CGD and the upcoming fertilizer plants on JHBDPL. These all customers will be coming on the JHBDPL. That means that the consumer will be paying the tariff upstream pipeline like HBJ and thereafter JHBDPL. Therefore, the weighted average fare revenue will also be higher as compared to this year. Polymer production stood at 234 TMT in Q3 FY 2022, as against 216 TMT in Q2 FY 2022. Increase of 8%. The plant is currently running smoothly.
During the current quarter, plant operated 114%, as compared to 106% in Q2. We are quite confident that plant will be able to achieve its 100% production capacity this year as well. Polymer sale stood at 217 TMT in Q3 financial year 2022, as against 221 TMT in Q2 financial year 2022. Decrease of 2%. We have witnessed a very good peak petrochemical prices in the last quarter. If you talk of average price in last quarter, it is around INR 104,000 per metric ton. We expect that price to remain stable, robust, even in near future. The LFG sales stood at 275 TMT in Q3 financial year 2022 against 262 TMT in Q2 financial year 2022. Increase of 5%.
The capacity utilization increased to 77% in Q3 as compared to 74% in Q2 financial year 2022. The price realization in Q3 was up by 46%. There is significant increase of price in Q3, 46%, as compared to Q2, which led to the significant increase in margin of LHC, despite increase in input costs. If you remember that input cost increased from $1.79 per MMBTU, we are talking of APM prices allocated to LPG segment. Cost of input gas from LHC segment is primarily driven by domestic gas price from April 2022 based on the current formula.
We expect that cost of input gas will go up, but considering that the LFG price are at very good level when we see the future are likely at a very good level. Therefore, the pressure on the margin will not be to that great extent. LPG transmission was 1,057 TMT in Q3 financial year 2022 as against 1,054 TMT. It is almost flat as compared to Q2. 1,057 versus 1,054. The capacity utilization is 110% in both Q2 and Q3. Coming back to the consolidated financial year 2021. The turnover in Q3 financial year 2022 is INR 26,084 crore versus INR 21,739 crore in Q2 financial year 2022, up by 20%.
The profit before tax in Q3 FY 2022 is ₹4,820 crore versus ₹3,728 crore in Q2 FY 2022, up 29%. The PAT in Q3 FY 2022 is ₹3,781 crore as compared to ₹2,883 crore in Q2 FY 2022. That is up 31%. On nine-month basis, GAIL has achieved consolidated turnover, PBT and PAT of ₹65,373 crore, ₹11,088 crore and ₹28,802 crore respectively, and up 57%. The turnover up 57%, the PBT up 146% and PAT up 141%. Coming back to the cargo details. During the quarter, GAIL received 22 LNG, the 14th from Sabine Pass and 8 from BCP.
Out of these, only 6 cargoes are sold in overseas market, and because of the increased demand, we brought remaining cargoes to India directly or through destination swaps. GAIL CGD, the profit from GAIL CGD business have increased. This is picking up. Now in last quarter, it was INR 9 crore as compared to the Q2, INR 33 crore. GAIL is having infrastructure of 92 CNG stations and approximately 165,000 domestic PNG connections, with cumulative CapEx spent is INR 1,000 crore. In the next two years, GAIL targets to add over 100 new CNG stations and 250,000 new DPNG connections. The Q3 sales is approximately 0.16 MMSCMD, and we expect the sales to grow by 20% in Q4, and is expected to double in next two years.
With respect to GAIL Gas, during Q3 of FY 2022, gross revenue from operations stood at INR 2,057 crore as against INR 1,478 crore in Q2 FY 2022, an increase of 39%, mainly driven by increase in volume and average gas price. PBT remained flat at INR 103 crore in Q3 versus 105 crore in Q2. The profit also remained almost flat, INR 77 crore as against INR 78 crore in Q2. Gas sales have increased from 4.998 MMSCMD in Q2 to 6.13 MMSCMD in current quarter. This mainly has happened because of addition of one bulk consumer and increase in CNG and DPNG demand.
GAIL Gas, along with its daily facilities and infrastructure of 750,000 DPNG connections and 268 CNG stations, GAIL Gas plans to incur a CapEx around INR 4,000 crore in the next 3 years on expansion of network in existing cities, Sonipat, Meerut, Kota, Dewas, Ratlam, CPGM, Bangalore. For all the GAs in ninth and tenth bidding rounds, the sales volume is expected to grow by approximately 10% per annum over the next 3 years. Coming back to the CapEx detail, GAIL has achieved over 4,500 crore of CapEx up to December 2021, mainly on account of pipeline petrochemicals, CGD projects, operational CapEx, equity contribution, and E&P. We have planned to spend INR 7,500 crore in the current financial year and similar amount in financial year 2022-23, and mainly on pipelines, the petrochemical, CGD and equity.
Just to share with you the project performance on the Pradhan Mantri Urja Ganga, the total commitment is over INR 15,530 crore, and the actual CapEx till Q3 FY 2022 is INR 12,815 crore. We have been receiving the capital grant from government regularly, and till date, the total capital grant received is INR 4,549 crore as against total grant of INR 5,176 crore. GAIL, along with JVs, is executing various pipeline project for approximately 7,500 kilometer, entailing total cost of approximately INR 37,000 crore. GAIL is executing PP projects at Pata and Usar with total cost of INR 10,000 crore. The EPC contract and licensor selection has been done, and the work on project is going on as per schedule.
Just to share another just recent development, the OTPC, GAIL acquired equity stake of 26% in ONGC Tripura Power Company, which owns and operates 726.6 MW gas-based combined cycle power plant at Palatana, Tripura. The stake has been acquired from ILSS group company for a consideration of INR 319 crore. Thanks, all, from my side regarding the overview of performance and projects. The management of the company is available. We would be glad to clarify regarding any questions that you may have. Over to you, Mr. Harsha.
Sure. Thank you. Moderator, can we open the floor for Q&A?
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 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. Thank you. The first question comes from the line of Vishnu Kumar with Spark Capital. Please go ahead.
Good evening, sir, and congrats for a superb set of numbers you have delivered. My first question is on the transmission business, especially if you could just update us on the new fertilizer plants that are coming up and when do you expect all of the four or five plants that are already there to reach good volume utilization.
Just hold on. You're talking of the new fertilizer plant which are coming up.
Yeah.
If you talk of HUR Gorakhpur.
Mm-hmm.
Pre-commissioning of this plant is in progress, and we are currently drawing 0.1 to 0.2 MMSCMD of RLNG. We expect commercial production to take place in April-May 2022. If you talk of HUR Barauni, again, the gas supply for pre-commissioning started in December 2021. Currently, the plant is drawing 0.1 MMSCMD, and we expect commercial production to take place sometime in October-December 2022. Coming back to HUR Sindri, gas supply for pre-commissioning started in December 2021, currently drawing almost approximate 0.1 MMSCMD of RLNG. Commercial production expected again in October-December 2022. These all three plants, apart from drawing the transmission around 2.2 MMSCMD, we have a contract for 1.87 MMSCMD for supply of gases through GAIL.
Is it fair to say this, by October, each plant will be drawing almost close to 1.87 by October to December quarter, all of them will be running closer to that capacity?
That's what we expect. Yeah, yeah. That's what we expect.
Understood, sir. Second question is on the transmission side, or rather the general SG&A costs for you has gone up to almost INR 1,300 crore. Steadily, it has been increasing about 100 crore on a quarterly basis. Is this the current run rate going forward or
What's the cost?
If you could just help us understand when that number will continue from there.
Can you come back again? What is that cost?
The SG&A cost which you report, the other expenses, sorry. The other expenses that you report on the P&L, that number.
Just hold on. What is that? Give me a moment. The other cost.
Other expenses.
Other expenses.
Transmission
We'll come back to you. Actually, we are not immediately ready with that.
Got it, sir. My final question is on the gas usage across various segments. If you could just tell us how much of APM gas is being used at each segment, and just trying to understand because cost is going up.
Each segment by GAIL or by country?
No, no. For GAIL internal consumption, let's say, we are using in the gas transmission. In LPG, how much you use a gas, a domestic gas, or let's say in petchem, in case you use any domestic gas.
No, no.
All the individual segments.
Yes.
Internal consumption.
Yeah. There is allocation of APM gas to GAIL is for LPG and the fuel consumption in compressors. Okay? The allocation, can you tell me? Allocation 2.5, isn't it? Just hold on.
One point, one point nine.
What is that?
Allocation is 1.9.
Yeah.
One point nine. One point nine.
In LPG, nah?
Allocation is 1.9, sir.
LPG. Then?
Yes.
Fuel?
Allocation, it is 4.32.
fuel?
Compressors.
Compressor is 1.33.
Compressor is 1.33, and LPG it is 1.99. 1.92.
Okay. At a steady state basis, you are using only 1.9 to this from April.
No, no. Okay. One cost is pass-through cost. If we talk of compression, the fuel consumption cost is pass-through to tariff. There is no increase which is going to impact GAIL.
Okay. Only on LPG, this 1.9 will be increasing.
Yes. To the extent the APM price increases, certainly input costs, as I also said in my initial remarks, the input cost is going to go up. Considering the LPG price currently and likely price increase or likely price scenario in future, it will impact, but it is not going to impact significantly.
Got it. The transmission we thought whatever tariff is getting reported, that will be the number. You're saying that, whatever PNGRB given number, plus, incremental cost will also be transferred. Is that the right understanding on the transmission?
Incremental cost, okay. The tariff for natural gas pipeline are cost plus. Any increase in cost is passed through.
Understood, sir. Got it. Thank you. I'll come back in the queue.
Sure.
Thank you. The next question comes from Amit Rastogi with UBS. Please go ahead.
Sir, thanks for giving me the opportunity and super congratulations for a strong set of numbers. Sir, I have two questions. One relating to your gas marketing. Could you give us an outlook for gas marketing US cargoes for the next financial year? That how many are you planning to bring in India, and how many are you going to sell internationally, and what kind of arrangements we have? Because I think one clarity which investors need today is like the volatility in the gas trading business is quite huge. So if we can get you know a confidence that the volatility is reducing, that will be quite helpful for the investors.
Amit, just I want to understand how the volatility is getting addressed by bringing cargo to India.
Sir, because internationally, we understand that, you know, the prices are fluctuating versus your Henry Hub prices. We really don't know whether, you know, you have sold those cargoes at a profit or at a loss. That is one. Second is if you're selling more volumes in India, my understanding is that that it brings quite a lot of stability. Only we will be subject to some basis risk, because I think in India you sell the cargoes at a-
Okay.
oil-linked pricing, and while the cost of the cargoes is linked to the Henry Hub pricing.
Okay, I understand. I will request the ED, Executive Director International LNG, to just give you the details about the cargo which we will sell in international market and India.
Yeah. For the next year.
Hello, good afternoon. My name is Kaviraj. For a moment, keep volatility aspect aside. Okay? So far the reason why we sold LNG cargoes in the international market was that we didn't have commensurate demand in the domestic market. It was more of a mitigation measure which we have been undertaking ever since our US volume started physically in early 2018. Okay? Now with time, the domestic tie-ups which we had done with the fertilizer sector as well as in other sectors, they are slowly getting fructified. Time has come where we feel that the erstwhile mitigation measure which we undertook is no more required.
On the contrary, we have to preserve our every volume, whether it is US or Gazprom or ExxonMobil, we have to preserve it to cater to the Indian market. Okay? This is the broad outlook. At the same time, whatever volume which we have sold under the mitigation measure in the past, that we'll continue to, you know, honor. To put a number or an assessment, they are hardly few now. Okay? That commitment was made till March 2023 only, so far.
Anything beyond March 2023, I mean, I don't think there is any number, but till March 2023, cargoes were sold under a term contract. If I have to broadly, you know, quantify these numbers, it'll be around 15-20 cargoes. Okay? This we have to honor it. Rest everything is being brought and will be brought to India only henceforth.
Okay. That is quite helpful. Sir, when you sell incremental cargoes in India-
Our action plan is nothing to do with the volatility because our ultimate market is India, and we are here to serve Indian market and tie-up has been made and pipeline investment has been made accordingly. We have to fulfill those obligations.
Yes, sir. Really good to hear this. Could you tell us that now incrementally are you able to sign more cargoes, more volumes, in long-term contracts from U.S. portfolio in India? What is the pricing you know you're looking at? Is it Henry Hub plus or is it still linked to oil?
I will not be able to specify anything, but yes, there is a mood internally that we have to revisit our demand supply position because we feel that there is a scope for sourcing additional volume to meet the emerging requirement. We are not yet finalized. Right. You know how much volume and from where and how we have to source it. I mean, we are yet to finalize it because it all depends on the schedule of the balance of demand from time to time.
Yes. Okay. Okay.
Amit, if you have any opportunity which can give good scope, please let us know. Amit, first I would like to add to what Viraj has said. We will be able to bring most of the cargoes to India as demand is increasing because we have commitments for fertilizer plant. We are also with respect to your answer whether we have plan to source. Let me give you one thing. When we are bringing the cargoes to India, we are creating a space for ourselves that there is the space which we were occupying in international market, we were marketing certain volumes.
Yeah.
Apart from the, you know, sourcing of cargoes for Indian market, perhaps we can also fill that space of buying cargoes to maybe serve international market. That is also being analyzed internally.
Got it. That would be quite an interesting move. Sir, my second question relates to the CGD sector. GAIL is, you know, one of the largest player in city gas distribution. But now of late we are seeing that, some gas allocation issues being raised for the, priority sector. How do you think that, these things will settle down? Because incrementally we are seeing more and more volume growth like you're seeing yourself GAIL gas is growing, you know, pretty fast. Your own CGDs, including MGL, IGL are growing pretty fast, but they are not getting commensurate APM supplies, which they were supposed to get. Hence, you know, their cost has gone up and there will be further cost pressures, from April when the APM prices go up.
Do you think that these businesses would still remain that much profitable as they were? Would the government give the similar support which they were providing earlier?
Amit, there is no because this question is based on a hypothesis, what will happen in future. Now going by the hypothesis, you have assumed that there will be less allocation or there will be different pricing mechanism for that. Certainly, if input gas price increases, the margin will be under pressure. You see, because in the CGD sector, the prices are mostly based on alternate fuel price. To the extent they have margin, they will increase, but if that margin is lower than the input gas, certainly there will be pressure. That is one part of it. The other part is that the CGD sector is a growing sector.
If even if there is a little bit pressure on their margin, hypothetically, but then they are growing and their you know business is going to increase. The size when increases, that will give another efficiency. In my view, that will compensate that. That pressure may not be to the extent which is being envisaged if this happens.
Do you think there will be like a continued support in terms of 100% APM gas allocation for the sector?
Yeah. That's a priority sector. It is a list of priority sector as altered. There is no change.
Yeah. Okay. Thanks, sir. Thank you for answering my questions. Sir, congratulations once again for a super set of numbers. Best of luck.
Thank you so much. Thank you.
Thank you.
Thank you. The next question comes from Probal Sen with Integrit Capital. Please go ahead.
Yeah. Firstly, since as you gave the status on the three fertilizer plants on the East Coast pipeline, could you give the status of the remaining two, which is Matix and, Ramagundam, where we're also going to supply-
Actually I shared on the status which were in progress. If you talk of Ramagundam commercial production happened in March 2021.
Mm-hmm.
Plant is currently consuming 1.7 MMSCMD of gas and it is of course yet to be stabilized. Full gas offtake is likely to happen sometime in March, April 2022. Because it is started, so I did not share. In respect of Matix Fertilizer, Durgapur supply commenced in August.
I'm sorry. If it is $1.7 right now on full stick, how much would it increase to?
How much? 2.2.
Okay.
Got it?
Yeah. I'm sorry to interrupt. Very sorry.
Yeah, no issue. Sorry, I am sorry. The supply commenced, I am talking of now Matix, in August 2021, and currently drawing at full quantity. That is 1.5.
My question was, I said, just to get the background for an overall question, which is that if I look at the gas sales volume, which is 96.56, in the current quarter, it is virtually flat compared to, let's say, what it was two years back, December 2019 quarter, the last pre-COVID quarter. If I look at your transmission volumes, 114, they compare to 110, and all the additional four, I would say can be attributed to the Reliance volumes. Okay. Basically your own customers broadly have not taken up more at all, okay, in the last two years. What I wanted to ask is, A, if you can give us any color on that.
Two, especially on the LNG cargo, as you have explained in the past, it's you all have to do forward scheduling in terms of planning for how much volumes get sold in given market as per the contracts for you to be able to schedule everything. From that perspective, this volume that you have sold, or rather, let me put it this way, the long-term contracts that you have signed or was supposed to come through in third quarter, has it been lower than what you thought it would be in March and April? Consequently, if it was lower, then you had more volumes to offer in the spot market comparatively. Would that be a right assessment?
In the background we said that our volumes are flat as compared to the peak which we had in December 2019 and now. We are, yes, to some degree that's correct. Then we have all the contracts which we had in past which we shared, like all the five fertilizer plants. I shared in the opening briefing that these all plants will come in stages and therefore the plants will take gas on average. If we talk of peak, the increase will be six MMSCMD, but if you on average, there will be three-four MMSCMD of gas sales which is going to be increased, and consequently, the transmission will also increase.
In March, April, we expect, you know, the marketing volume and transmission volume both will increase.
No, no. Sorry. Maybe you didn't understand my question. I was asking the other way around. When you were planning in March 2021-
Yeah.
saying, "Okay, how much sort of LNGs I will sell in India based on the long-term contracts?" Okay, you would have factored in, you know, some volumes from the fertilizer units and from all your long-term customers. Have the actual volumes been lower in third quarter compared to what you had planned initially, and consequently, you know, you had more to offer in the spot market?
No. See, volumes from suppliers were as expected. There was no shortfall from international suppliers. Okay?
I'm asking from your customer's perspective. Sorry.
From customer perspective?
Let me put it this way. In some of the earlier quarters, okay, you know, whenever if you had explained, for example, that, you know, you had expected a new plant to start off in, let's say, one quarter or two quarters, okay, and that plant didn't really start. There were some issues and stuff like that. Whatever long-term volumes you had reserved for that particular plant, you were forced to sell in the spot market. Okay, that would happen, right? I mean, effectively, as I said, we plan well in advance all these things. According to your earlier plans, you know, has the long-term volumes been lower and accordingly you have to sell more in the spot market? That will be more explicit in terms of what I'm saying.
If the volumes have not really moved, and if you're still making higher profits on gas trading, then obviously margin has gone up, right? Margin can go up only if, as I said, more is sold in the spot market at whatever prevailing higher prices. I'm trying to get a logic on that.
Okay, I'll try to explain. If you actually look at the physical numbers, there is an increase. Okay? You are deriving inference based on, you know, delay in anchor plant coming up. All along in the past, besides the long-term volume, there have been occasions where we have been sourcing LNG from spot market to meet the spot requirements. Okay? Are you with me?
Yeah, yeah. Please go ahead. Sorry.
Unfortunately, because of the spike in prices in the previous quarter, we didn't have scope for buying spot volume, spot cargos. Okay? The molecules inflow expected under the long-term contract that came in. Okay? It's a matter of how we reappropriated or bifurcated between long-term and the spot.
That specifically is my point. Now, sir, effectively, I assume you are, let's say in second quarter, for argument's sake, let's say you are selling 10 cargos in Indian market at long-term to long-term customers, and another 10 cargos to the spot market by procuring spot. Okay?
Mm.
Now, if you're substituting, then obviously the long-term has to go down, right? In terms of, you know, somebody who's not taking. That's why you can substitute. Otherwise, how can you substitute?
There is no such case here in this quarter that nobody was willing to take. All we can say is that we didn't have the opportunity to buy cargoes from the spot market.
Okay. Would it be right to say that there is substantial still, I mean, as against the general impression that all, most of the volumes sold in the Indian market, or the LNG sold in the Indian market is all linked to oil pricing. At least in this third quarter, there would have been a reasonable amount of volume sold at spot pricing.
No. Come again.
I think the general impression is that whatever LNG volumes you are selling in the Indian market is all linked at
Yeah.
All sold as oil pricing, basically RasGas pricing.
Okay.
Would it be right to say that at least in the first?
Not all substantially.
Yeah. Okay. Would that have the proportion? I mean, is there more spot, let's say in this quarter, more volume sold at spot in the current quarter relative to history?
No.
Okay. I'm sorry. Can you give us any color at all as to then how effectively margin score has gone up so dramatically quarter-on-quarter?
The margin doesn't have to always necessarily go with increase in volume, isn't it? We sold less volume in the spot market, but at a very high price.
Okay.
The volume sold in the spot market is less than the preceding quarter, but the realization has been much higher than what it was in the preceding quarter.
Okay. Understood.
Yeah.
Okay. Thank you, sir.
Your question is valid for the same fiscal, how you are having, you know, higher margin. This is the reasoning I can give.
In that sense, you would have realized the same kind of spot pricing in India as you would have realized selling in, let's say, Asian market. Would that be a fair sort of assumption?
No, no.
Okay, now another completely sort of.
No, it's very difficult to, you know, give that analogy, which may not be true always. Sometimes it might be true because global market and Indian market need not be and may not.
No, no. What I'm trying to understand, sir, is like when you, as you rightly said, you said you sold certain spot volumes in the Indian market.
Yes.
When you sell spot volumes in Indian market, it would have to be what? The benchmark would be the Asian spot price, right? That's what I meant.
Yeah. Yeah.
That's what I meant. I mean, selling, you get same realization in India as you would get in the Asian market.
By selling the LNG as liquid in the global market, you are saying?
Yeah.
Yeah, that is possible, but we didn't do that. We brought the volume into the Indian market.
Yeah, that's what I'm trying to say, sir. Instead of bringing it Indian market, even if you have sold in Asian market at Asian spot, the realization will be the same, right? You have sold in the Indian market also at a Asian spot price.
It depends on when we undertake the sales. See, in the international market, we have to decide the sale much in advance. In Indian market, it is, you know, just one week before also we can sell it. That's the difference. To sell a cargo in January, we would have decided by the month of, you know, November. Okay. To sell a volume in Indian spot market, we can decide even during January. That's the difference I'm trying to tell you.
Okay. Understood, sir. Sorry, last very sort of completely bookkeeping question. What was the interest capitalized in the third quarter? In the first nine months, let's say.
Interest capitalized.
Just hold on. We come back.
We'll get back to you.
Just hold on.
Yeah, sure. No problem. Thank you so much.
We'll give you offline. This is only data. We'll have to take it out.
Yeah. No problem. I'll take it later. Thank you so much.
Okay.
Thank you. The next question comes from S. Ramesh with Nirmal Bang. Please go ahead.
Good evening, and thank you very much. Just to go back to the discussion on LNG margins, can you give us a sense of any inventory gains or mark-to-market gains you would have booked in this quarter, given that the spot prices have gone up so much?
There is no inventory gain in this quarter.
There is no concept of inventory.
No, what we're trying to get at is, see, if you're saying that you're gonna ship cargo from the international market, and you're going to sell it to domestic market, if you assume that, you know, the domestic purchasing power is gonna be possibly a lot more sensitive, is there a risk that your realizations will come down and the margins will come down? That's what I'm trying to arrive at. Can you come back one second, please?
No. See, if you look at your margins, there's been a sharp increase in the unit margins for your gas marketing business. If you are saying that you're going to bring additional cargo from the international market to the Indian market, on an equivalent basis, you know, will you be able to earn the same margins in the Indian market?
No, no. If we are required to bring in from international market to meet further demand, there cannot be same margin because that's the market.
What is the long-term sustainable, say, margin per unit because the percentage margin doesn't make sense. In terms of unit margin, what is the most sustainable margin one can assume for your gas marketing business?
So, uh, just-
Yeah, let me try to give an answer. Okay. In trading, I mean, it will be very difficult to
Assign or fix a percentage of steady margin, okay? Because of the volatility in commodity prices, which we all have witnessed, okay? The only thing which we can say very favorably is that 90% of our volume have been tied up under a long-term contract through a price formula. Is the case in the upstream side also. To that extent, the revenue is likely to be stable because both the sides are insulated from market volatility. The balance 10% might decide the swing depending upon the market conditions.
Yeah, that is helpful. The second thought, when you mentioned that you will get the benefit of HVJ and the JHBDPL pipeline for your increased gas volumes in the Urja Ganga pipeline, what happens when the unified tariff is introduced? How would that change the gas transmission margins when you take it on a blended basis once the JHBDPL is in full operation?
First, I have made that statement that when this four fertilizer plant comes fully on its on stream, a weighted average revenue tariff realization will increase. Obviously, for the current tariff mechanism, which is cascading tariff or pipeline to pipeline tariff for end consumer, and these four plants being adjusted on JHBDPL phase II, the tariff will increase. Coming back to your question, what will happen when unified tariff comes? In the current form even though the unified tariff has not yet been implemented, there are a lot of issues with that. Even if it comes in current form, that regulation ensures revenue neutrality. It means whatever tariff otherwise I am eligible pipeline to pipeline will be available even in the regulation which is notified, that is revenue neutrality concept.
My revenue are going to increase when these four plants come fully on stream.
that means we can expect your return on capital employed on the pipeline business to go up. Is that a fair assumption?
For these pipelines, because some or more pipelines we are laying, if you include those, we may not increase to that extent, but for this pipeline, certainly going to go up.
Okay, that's useful. One final thought. There is a statement, emphasis of matter under note 53, about INR 552.4 crores. Is there any liability that is likely in future which you may have to return or write off? What does it mean, actually?
Yeah, let me take a couple of minutes to explain you. We have a company, our own 100% subsidiary, that is GGY in United States. That company has taken a loan, $70 million, and we have provided corporate guarantee. Now, in terms of Ind AS, if you provide corporate guarantee, you need to account for expected credit loss. As on date, there is no trigger that we need to provide that. We have taken the opinion from the Institute of Chartered Accountants, that also suggests the same. What we said in our notes to accounts that we'll examine it in next quarter, whether we need to provide any provision or some provision. Though there is no trigger. That company is paying its loan, rates are being paid regularly. There is nothing which says we should provide.
Anyway, Ind AS and the guidance note suggests that you can keep a futuristic something may happen. Not INR 524 crore, maybe based on some opinion comes to, we may need to provide, but there is no trigger and no actual loss.
Okay. One last question. The Konkan LNG, in the consolidated numbers, is the margin from that accounted in the gas marketing segment? Where is it accounted, in the segment earnings, revenue and EBITDA, EBIT?
Just hold on.
Konkan LNG
Marketing
Gas marketing segment.
Okay, thank you very much.
Yeah.
Thank you. The next question comes from Sujit Lodha with Aditya Birla Sun Life Insurance. Please go ahead.
Hi, sir. Thank you. Thanks for taking my question. My one basic question would be, of the 97 MMSCMD, which is reported in the trading business, can you give us a breakup of domestic, and long-term LNG and spot?
Sure. Just hold for a while. Up to two, three years. Domestic gas, if we talk, let me say other way around. The total 97, we have RLNG exported around 45.
Okay.
We have overseas sales around ₹10.55 million. The rest is domestic.
Almost 42 is domestic.
Yeah.
Of this 45 and 10, 55, how much would be spot and how much would be long term?
We actually almost sell 10% on broader basis in the spot market.
10% of 97?
No, no. RLNG, because APM gas is not a spot. Domestic gas are not on the spot, huh?
No, no. I am just asking 10%, number is-
5% of, 5%-6%, 7% of total.
6-7 MMSCMD would be spot. 5.5. Not even-
No, less than five.
Less than five. Okay. Sir, my second question would be regarding the trading margins. Well, obviously it is very dynamic in nature, the pricing, etc., but whatever contracts we do, we have a fair bit of an idea of the next three months because they have to be contracted at least three months in advance for your overseas cargos. Sir, what is your take on the gas trading margins? Are they expected to remain in this trajectory for next quarter as well, or do you expect any major swings from here? I'm just asking for guidance. I'm not asking a number. I mean, what could the direction
I am also giving an answer. Who can predict the spot, LNG spot price? Currently the LNG spot price at that level, the numbers can be at that level, but nobody can predict what will happen to LNG price.
Sir, no, but your overseas contract at least would be a couple of months in advance, right?
Yeah, yeah.
We sitting in February would have idea of how it's gonna be in what it had been in January and how it's gonna be in March, April. That fair bit of idea is there, right? Are they expected to be stable at the 3Q levels or what is the guidance there? I mean, will there be a major-
Q3 level was really very good, and we will not be able to say that we'll be able to maintain Q3 or we will be better than Q3.
Mm.
It will be around or maybe little less than the Q3.
Okay. In and around that 5-10%, plus, minus.
Cannot say 5%-10%, but, yeah.
Okay.
It will not be better or relatively challenged to meet that level.
Right. Sir, my last question would be on transmission. I am sorry if I missed that number. What is the current transmission volumes?
100, current means in last quarter you are asking? or average-
No, no.
Nine months.
No, no. Now you are, say for example, exit rate of third quarter or if the Jan number, if that could be possible for you to give. Hundred and-
In Q3 it was 114.
Mm-hmm.
Yeah. The current exit rate is lesser than that. It is 105, 106. The primary reason is that few of the fertilizer plants are under shutdown for a period up to 15-20 days.
Mm.
which has reduced our volume by six-seven MMSCFD, maybe little bit more. I have removed those volumes, so it is currently around 105, 106.
Sir, when they come out of shutdowns, we are still operating at 100 and-
It will be 111, 12.
Okay. It is lower than the third quarter number.
It's, yeah.
Okay. These shutdowns are expected to be on till what time, from end to end?
Around fifteenth February. No, maybe
Twentieth February.
Twentieth February. I have been corrected, twentieth February.
Okay. Thank you a lot, sir. Thank you so much. If I have anything, I'll come back in touch. Thank you, sir.
Sure.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, request you to limit your questions to one per participant. Thank you. The next question comes from Gokul, an individual investor. Please go ahead.
Hello. Thank you for the opportunity. Could you give an update on the InvIT proposal that was sent to the ministry? Is there some movement regarding going forward listing then?
InvIT proposal is still under deliberation. As you know that, two of the pipelines have been identified for InvIT, that is BUPL and DBPL, Dabhol-Bangalore and Dahej-Gondal-Dabhol-Panvel pipeline. We have appointed a transaction advisor to identify what can be the best mode of, you know, financing for us. Based on our analysis, we found that because we are almost a debt-free company, and so we are able to source the debt around 5-5.5%. That is the best, better source for us in financing. Then we also carried out a study through transaction advisor.
We suggest that another mode can be the, you know, debt securitization model instead of the InvIT. We can also go for debt securitization model. That is almost a little costlier than the current rate of borrowing. We are still, you know, we have examined. We are still under deliberations that what is the mode actually we should go to. We are discussing and nothing concrete has yet been finalized.
Thank you, sir.
Thank you. The next question comes from Sabari Hazarika with Emkay Global. Please go ahead.
Yeah, good afternoon, sir. Sir, I have just one question. Currently trying to breakdown long-term LNG volumes, how would the mix be out of say 40, you say that around 55 is your LNG, which 50 MMSCFD spot. 50 MMSCFD, how the breakup would look like, Qatar versus Gorgon versus Gazprom versus Western LNG?
Yes, yes. We have around, you know, 4.8 MMTPA of long-term contract with Qatar. 4.5 + 0.3. Okay?
Okay.
We have 5.8 MMTPA from United States.
Right.
Currently we are having 2.5 from, you know, Gazprom.
Okay.
A very minimal volume of 0.4 from Gorgon. This is how I have told in terms of MMTPA, but you can just multiply by 3.6, so you will reach to MMSCMD. This is
Yeah. Sorry.
Go ahead.
Yeah. These are all operating at 100%, right? Currently.
No, I have told you 100% only because otherwise we have ramp up in Gorgon. The final ramp up is pending. Currently, this is what we are actually getting.
2.5 MMTPA is the current volume, and ramp up would be to how much? Gorgon volume.
2.85 is the maximum.
2.85. Okay.
Yes.
Okay, sir. Thank you so much, and all the best.
Yeah.
Thank you. The next question comes from Kirtan Mehta with BOB Capital Markets. Please go ahead.
Thank you, sir, for the opportunity. Just one question to understand on the utilization. You said that the pipelines are
Your voice is not clear. Your voice is not clear.
Are you able to hear me now?
Yeah. A bit better.
Yeah. I want to understand about the utilization, how it would develop over next 2-3 years.
Yeah.
What I understand is currently pipeline is sort of operating at 55% utilization, and there would be 5%-6% sort of natural gas transmission volume increase per annum over next two-three years.
Yeah.
At the same point of time, I think we will have Urja Ganga plus sort of the Kochi-Mangalore pipeline capacity ramping up as well. There would be capacity development as well. How do we see the average utilization improving over the next three-five years?
Currently the utilization is 50-55%. Phase II of the Urja Ganga is going to get commissioned. When we are saying 55%, we are saying 55% considering their nominal capacities. The booked up of 26 to 206 is considering their nominal capacities. When I'm talking nominal capacities, like, you know, in case of HBJ it is 107, in case of Dabhol-Bangalore 16, DUPL 16, so considering their nominal capacities. Only in case of Urja Ganga, the tariff has been worked out considering the 7.44 MMSCMD, but the capacity is 60. The tariff has been determined considering the phase I only.
When the volume increases, like fertilizer plant comes, the volume, total volume will increase, and consequently the utilization percentage will increase. Okay?
Hello. Since we are not able to hear from the participants, just a moment here. Let me promote the next questioner. Thank you. The next question comes from Amit Sanghvi, an Individual Investor. Please go ahead.
Hello. Yeah, congratulations for this achievement for this Q3 in turnover, PBT and PAT. Sir, my question is already answered in the previous discussion, but I have one more request for you, sir. If you can provide some sort of presentation before this earnings call starts, it would be better to understand the actual thing. It is my request, sir. Okay?
What kind of presentation you expect? Because the financial results are already available in public domain.
Sir, what is available in public domain is a quarterly result. What I would say that we have discussion over some quantitative details, which is not a part of this public domain information. I just request that if you can provide some sort of presentation for the particular quarterly production and financials, it would be better.
We'll consider. We'll review that. Thank you.
Thanks a lot. Thanks. Okay from my side.
Thank you.
Thank you. The next question comes from Pinakin with J.P. Morgan. Please go ahead.
Thank you very much for the opportunity, sir. Just going to go back to the trading business. Very early in the call, the management specified that roughly 15 cargos have been, you know, sold forward till March 2023 overseas. Now, just trying to understand that on those 15 cargos, has the price already been fixed on a basis, or is it linked to some kind of spot index or crude prices? What I'm trying to understand is on those 15 cargos, depending on how crude and LNG prices move, will there be a change in profits and profitability?
Just to clarify, it is not exactly 15, it should be around 15-20. I mean, we can say around 20 numbers, okay? These were sold, maybe, four or five years before it was indexed to HH. Some of the volume, I mean, all the volumes are indexed to HH only.
To that extent, sir, if Asian spot JKM index were to go to $50 or $10, there would not be any profit flow through on those cargoes.
I don't think one would sell volume like this.
Understood. Sir, the cargoes that are brought to India from the U.S., when you sell them to India, are they on a spot mechanism linked to JKM or are they crude contract linked? What I'm trying to understand is, depending on how spot JKM moves, will those U.S. cargoes that are being sold to India see a change in their profits?
I don't think industry operates that way.
Okay. To that extent, sir, then the December quarter profits were essentially some spot cargoes which were sold at very high prices, right? It is not something which can, you know, repeat itself.
Sorry, can you repeat? Because I thought you were making a different statement.
December quarter marketing EBITDA, gas trading EBITDA was roughly INR 1,800 crores. Now, effectively, if most of the U.S. cargoes either being sold in India or sold overseas are linked to some kind of indexes, then it means that the December quarter, you know, surge in trading EBITDA was essentially because of a few floating cargoes which would have been sold at very high spot prices. Right?
Yeah. One of the reasons could be.
That profit should not be repeated again. Do you see that if spot LNG prices remain high, then there are enough floating cargoes for GAIL to benefit from them in the March quarter as well.
Floating cargo means, can you define?
Floating cargoes essentially, sir, where you have not forward sold to any Henry Hub linked index or to a Brent linked index. The realization would be JKM spot cargo, spot index.
Just to clarify, we don't have any floating cargoes for this quarter, current quarter.
Understood. Thank you very much, sir.
Thank you.
Thank you. The last question comes from the line of Mayank Maheshwari with Morgan Stanley. Please go ahead.
Hello, sir.
Yeah. Hello.
Just one question in terms of a medium-term outlook, I suppose that I'm kind of looking for is, as you said, I think a lot of your cargoes are kind of getting tied up in the domestic market beyond 2023. Are you kind of now thinking to kind of start looking around eventually for more volumes, considering how good gas demand has been in the country? Is there something that the board is thinking about over more long-term solutions to source gas? Obviously, markets are high now.
This question has already been answered, and I will only repeat it. That, because we, being a gas company, continuously, you know, look for the sourcing if there is a demand in our country, and we are able to meet that. Regularly we assess the demand and supply situation. If such situation arises, certainly we look for that. The deliberations we have started, and we are looking for those opportunities. I also said that we were until our volume risk was mitigated, we are also marketing the LNG in international market. Once we start bringing those cargoes to domestic market, that space is also available for us. That means we can source and market in the international market and based on the demand, bring to India for domestic market.
That's a continuous process. Being a marketing company, we continue to assess that demand and supply situation in order to meet those demands.
Got it, sir. Good to hear the deliberations have started. Thank you for that.
Yeah. Thank you.
Thank you. In the interest of time, that was the last question. I now hand the conference over to Mr. Harshvardhan Dole for closing comments. Please go ahead, sir.
Thank you. On behalf of IIFL Securities, I'd sincerely like to thank GAIL management for giving us an opportunity to host the call. I also thank all the participants for joining in. In case there are any questions which are unanswered, you can drop a line to me or reach out to the GAIL IR directly. I'd like to request management to make any final remarks, if at all.
No. Thank you, Harsha. We have tried to answer most of the questions, but one or two questions we could not answer to our participants. Those can be referred back to us, specifically. In general, if somebody has got any query, it can certainly address to our IR team, and we will be responding. Thank you so much.
Thank you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.