Thank you. Good morning, ladies and gentlemen. Thank you for joining us on the Petronet LNG second quarter and first half FY21 earnings call. Today, we have senior management team from PLNG, led by Mr. VK Mishra, Director of Finance, Mr. Chawla, President, Finance, Mr. Sharma, VP, Marketing, Mr. Mittal, GM, Marketing, Mr. Satpathy, DGM, Finance, and Mr. Agarwal, Manager, Finance. We will begin the call with remarks from the management, followed by interactive question and answer session. I will now hand over the floor to the Petronet LNG's management for the opening comments. Thank you, and over to you, sir.
Very good morning to all of you. This is VK Mishra from Petronet LNG Limited. This second quarter has been very encouraging for all of us, and if you look at the kind of throughput which has been in the Dahej terminal, it has been 243 TBTU, which is highest ever throughput from Dahej terminal.
If you compare with the previous quarter, it was only 181 TBTU, and if you compare with the Q2 of the previous year, it was only 240 TBTU. So there's a surge of around 34% from the previous quarter, and around two percent you can say from the corresponding quarter. However, if overall throughput you see, the percentage has been 109% of the utilization level.
So, it is more than 108% in the corresponding quarter of the previous year, and 81% in the previous quarter. So it has been very encouraging. If you look at our Kochi terminal utilization, it has been utilized to the extent of 17%, which is almost 11 TBTU, as compared to 14% in the previous quarter, which was around 9 TBTU, and 10 TBTU in the corresponding quarter of the previous year, which was around 16%.
So there has been overall improvement in terms of utilization level of our both the plants. And as we had committed earlier, that Q1 was, especially, was not good for our company, and it was all across the industry, that it was not good for anyone because of that pandemic and the consequential lockdown period.
So, we have seen that downfall in the previous quarter, but now we have improved. And if you look at the margins and, PBT, our PBT has been highest ever PBT in this quarter, which is INR 1,242 crore, as compared to INR 697 crore in the previous quarter, and INR 885 crore in the corresponding quarter of the previous year.
And if you look at PAT, it has been INR 927 crore, which is second highest PAT ever, as compared to INR 520 crore in the previous quarter and INR 1,103 crore in the corresponding quarter of the previous year. So this improvement, if you see, there is a surge of around, 78% in PBT from the previous quarter, and same 78% rise is there in PAT also from previous quarter.
PBT, if we compare with the corresponding quarter of the previous year, there is a surge of around 40%. But PAT is not high because, in previous year, corresponding quarter, the tax rate was reduced substantially from 30% to 22%. Because of that, there was substantial reduction in tax liability in terms of deferred taxation, so, that's why it has been very high in that quarter.
But otherwise, this quarter has given us the highest, second highest PAT. So this is how we have performed. If you look at this kind of performance we have done in Q2, we had promised you earlier that we'll perform better in second quarter, and we have done it.
If you look at how we have done it, because there are two, three reasons which I would like to attribute. One reason is the resurgence of the demand to pre-COVID level in second quarter. And second is that we had robust operation efficiency, and also we had effective commercial planning by our company. Apart from that, we have declared dividend of 80% on equity. So it is INR 8 per share we have declared as interim dividend this time, which is higher than 55% in the previous year, corresponding quarter. So this is how we have done. Now, house is open for questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on the 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.
To ensure that the management is able to address questions from all participants, please limit your question to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Probal Sen from Centrum Broking Limited. Please go ahead.
Thank you for the opportunity. Good morning, sir. Sir, just one housekeeping question. First of all, is it possible to share the regasification service revenue, like you do every quarter?
Regasification, right. I think, this regasification services revenue, if you look at, it has been INR 678 crore as compared to INR 500 crore in the previous quarter, and INR 631 crore from the corresponding quarter of the previous year.
Right. That's entirely due to the jump in the regasification volumes, correct?
Yeah. It's basically there are two reasons. One is that the volumes from what it has increased, but there is a surge of 5% in tariff from Previous year, which is there always.
Right.
Which is also a major reason why it has increased.
Right. And, the second question, if I may, was the margin performance is also. Sir, may I continue?
Yeah.
Sorry. Yeah, I was saying that the margin performance has also improved quite substantially from... You know, if I look at, let's say, 2Q of FY20, volumes from Dahej more or less are similar, but obviously, our EBITDA performance has been far superior. What has been the cause? Is it marketing margins have gone up just—because just the 5% tariff increase can't quite explain that margin jump, sir, is all I was asking.
Yeah, that is true. But if you look at the kind of charge which has been there, if you compare with the previous quarter, it has been around INR 322 crore of the higher regas charges. But if you compare with the corresponding quarter, there has been a surge of INR 69 crore only.
Yeah.
So, this is there. And apart from that, there is also reason of this Ind AS 116. Because of that, there has been a surge of around INR 86 crore as compared to previous quarter, and INR 154 crore as compared to the corresponding quarter of the previous year. And apart from that, there has been some inventory valuation impact. So these are the major reasons for how we have done it the way the margins have improved. So this is the major reason that our regas charges and Ind AS impact.
Right. And sir, last question, if you can just give a quick rundown of the CapEx done in H1, guidance for H2 and FY22?
CapEx done in Q2?
In H1, sir.
H1.
For six months, yeah.
Okay. Debabrata, can you explain?
Yeah. Sir, so probably the CapEx will, because of the lockdown and this pandemic impact CapEx done in the H1 was about INR 15 crore, and the planned CapEx for the H2 is about INR 105 crore.
Okay. Can I get a sense of the major projects ongoing, sir, for this year and the next?
Yeah. Actually, projects, if you look at that, it is basically two, three projects which I would like to mention here. One is this, tanks we are undertaking, two additional tanks we are building at Dahej. With a cost of around INR 1,200 crore.
Right.
Maybe this year, we may place the order, maybe by end of the year. And, second project which we are taking up is the third jetty at Dahej, with a CapEx of around INR 1,300 crore, for which we have already completed the DFR. And so maybe, very shortly we will take the approval of board. In case of tanks, we have also, done RFQ, and, we are at the stage of RFP, with the kind of package, the three packages being there to shortlisted bidders. And we have got all the EC & CRZ has got clearance from the authorities-
And also have clearance for PESO for 7 tanks. For 8 tanks we have applied to PESO for clearance. So this is how we are going forward. And another project we are ambitiously looking forward is the Sri Lanka project. And this project is basically related to FSRU in Sri Lanka, where we are trying very hard.
This is a project worth $300 billion, and perhaps this will help us in going to have footprints in international arena. So I think this is a major project we are undertaking. Apart from that, we have a vision of having one terminal at on the East Coast of India. And perhaps if everything goes in our way, then it will happen 3-5 years' time. These are all, and that will have a cost of around INR 4,000 crore. This is how we are going forward. Let us see how far we can go and how early we can go.
Right. Thank you so much for the detailed explanation, sir. Appreciate the time. I'll come back if I have more questions. Have a nice day.
Thank you.
Thank you.
The next question is from the line of Bhavin Gandhi from BNK. Please go ahead.
Thank you for taking my question, sir. Just one clarification on the response to Probal's question. This INR 86 crore Ind AS impact, sir, is it above the gross margin line item, or it is below the gross margin line item?
Bhavin, the INR 86 crore is below gross margin. At the gross margin level, as it has been clarified that the inventory impact If you have seen, the spot prices have gone up by around more than $3 during this quarter. So the inventory valuation impact is around INR 60 crore, and the rest is the trading gains.
Got it. That's that explains it. Sir, if you can just comment now that we are, you know, already at 109% utilization as far as the Dahej is concerned, how should one think about volume growth for next 2-3 years out, both for the Dahej and for Kochi?
Yeah, actually, if you look at the kind of utilization, we are already utilizing more than 100%. So volume growth, if you look at, it is almost as good as the highest number. Because, if you see the expansion plan, because we are planning to have two more tanks and jetty, and also to have some modification to increase the capacity to almost 95.5 MTPA in the next three years, four years.
So I think that is our plan. But right now we are utilizing almost 100% capacity or more than that. So volume growth, we can say in terms of volume growth in Kochi terminal, because there we are still underutilized. And this Kochi-Mangaluru pipeline, which is expected to come up, this month itself, November. So we hope by year-end, we should increase the volume throughput in that terminal.
So this is our anticipation, because GAIL is already, I think, has almost in the final stage of completion of pipeline. They have committed that they will do it by mid-November. So let us see how long they will take in this November, but at least by end of November, it should be completed. Then we connect it to Mangalore, and, there will be utilization to the extent of 30%-35% by year-end or maybe beginning of the next year.
Got it, sir. Just one related thing. GAIL also mentioned about commissioning work on the Tamil Nadu section. Any update on that part for the Kochi-Mangalore, Mangalore pipeline?
Kochi-Mangaluru pipeline, GAIL is already in the process of awarding some of the contracts. Some they have awarded, some they are in the process of awarding by year-end. And then we can think that the Mangaluru section will also be connected to our Kochi terminal.
Got it.
That is how it will be done.
Sure, sir. Thank you, sir. Well, that's it from me, sir.
Thank you. The next question is from the line of Pinaki Parekh...
There is an issue if you can just help me out. Because there's a call coming from Secretary MoPNG. So, Rakesh, Debabrata-
Yes, sir, we will continue. We are there.
Then I'll join you back within 2, 3 minutes.
Sure.
Can you call me again so that I can join?
Sure.
Yeah, please. Yeah, yeah. Please arrange the call in 2-3 minutes. In 2-3 minutes, I will just talk to him and then come back to this call. In the meantime, please continue. Sorry for the interruption, but there is 2-3 calls which have come to me from Secretary MoPNG, so I have to take that call.
Sure, sir. I'll definitely give you the call.
Thank you.
The next question is from the line of Pinaki Parekh from J.P. Morgan. Please go ahead.
Thank you. I have three questions. The first is on the Sri Lanka FSRU project, where are we in terms of starting work? Have we finalized the project? When can we see the ordering start, or are there still some hurdles that the company needs to cross before it will start the CapEx on the Sri Lanka FSRU?
The second question is on the other expenditure line item, which tends to be volatile, but seems to have stabilized for the last two quarters. So can we expect this number to continue going forward? And my last question is, the DF mentioned that demand has recovered back to pre-pandemic levels in the second quarter. What is, how is demand trending at this point of time?
Okay, I'm Rakesh Chawla. Thanks for your question, Mr. Parekh. First question is with reference to Sri Lanka. That project is, there are certain hurdles up till now. The final approval is yet to be done. So CapEx, you can say incurring CapEx on the project is not likely to happen in this financial year. So the further detailing are being done, and post-detailing this, actual CapEx amount and other details will be available. Can you hear me?
Yes, sir, I can hear you.
Your second question is with reference to OpEx.
Yes, sir.
OpEx is during this first half. You can say there are certain maintenance activities had to be shifted to second half because of the COVID-19 impact. So more or less, this is likely to be in the same range, not much impact, but it may be slightly higher than the first half.
Understood, sir.
Because of that, those activities which spilled over to the next half.
Understood, sir. Lastly, on demand trends, sir?
Presently, there is a good demand, but post-rain season that all other terminals are also operational. So it may be in similarly, slightly, you can say, may not be the same in the second quarter. It is as per the previous trend as well, but it is going very well. It is, yeah.
Understood. Thank you very much, sir.
Yeah.
Thank you. The next question is from the line of Avadhoot Sabnis from Inga Ventures. Please go ahead.
So firstly, on the regas tariff, okay, your notes mentioned that this is still under discussion, it's still not settled. You know, we were expecting it to be settled by now. Could you give us any color, firstly, in terms of if we are sort of positioning for what are the 79.14 tariff rate in FY20, what is it that the off-takers are asking for, and what's the outcome? Basically, some committee was, had been formed to look into this. Why is it still not been settled, if you could give any, any color?
See, this matter is in discussion, so exact number, what are the characteristics of discussion that we will not be able to inform you right now. But, this there is a high-level committee which is includes some independent directors as well. So they are looking into this, and we are likely to, you can say, reach some conclusion within this month or say maximum another 30 days or within this quarter maximum. So as of now, the tariff is based on this number, what you have told, which was for 20, it was 79, and for the next year it is increased by 5%.
So any color you can provide us at all in terms of what is the risk here, in terms of if it is not 79, what it would be? As I said, what is that off-takers are demanding. Can you give us any color at all?
See, that since this is part of the negotiation and discussions, that number, it will not be fair on my part to discuss the number. Because, you see, off-takers can demand anything that nobody can stop, but we will not be, we may not be able to give, you can say, much lower number. So this number may be slightly lower here and there, but exact, exact number we would not like to discuss as of now.
Okay. And sir, in the prior calls, I think there was mention that you were originally optimistic that maybe even long-term deals could be possible at pricing which are more linked to spot pricing. Any color you can provide on that, any progress on the talks, how optimistic you are on that kind of deal materializing going forward?
You are saying that this weak efficient tariff with reference to spot price?
No, no, no, no, no. I, I think in the earlier calls, basically, all your historical long-term deals were at Brent link pricing. Okay? Whereas I think there was some encouraging words in earlier sort of concept calls, where you had mentioned that it may be possible to sign new long-term deals, where the pricing, instead of being linked to Brent, could be linked to more whatever is the prevailing spot price in Asia.
See, as you are aware, that as of now, spot price is even higher than this long-term price. So it is a continuous process. And yes, you are right that we have had come out with a tender that where the price we are linked with the current price instead of having this long-term price, and that price linked with the prevailing price. So that is an ongoing trend now in the international market.
Few other companies have also come out with some similar type of tenders. So in the long run, this is likely to happen what you are talking. But as of now, that this existing our long-term contracts are there. For that, this may continue for some more time, but new long-term contracts in the international market are happening on this type of procedure. And Mr. G.K. Sharma can give some more light on this, and he is looking into marketing and sales.
Good morning, this is Gyanendra Sharma. Vivek, could you-
Sure.
Could you add some light on it?
Sure. Hi, Avadhoot. So you rightly mentioned that in previous calls we had given some information that we are in discussions having a long-term deal linked to JKM or DES West India kind of prices. Those discussions are still ongoing, and, of course, we will need to go to board once the decisions, discussions are concluded. But at this point of time, only thing we can say is that, yes, our intent is to have some deals linked to current or the prevailing prices, linked to spot prices. So those discussions are ongoing.
Okay, thanks. And lastly, the elephant in the room. Any comments at all on the status of the Tellurian MOU?
Tellurian, actually, if you look at, there is no progress, as we have done earlier also that, we have signed a non-binding MOU. So, it is there, but there is no progress, because, if you look at the market, now LNG is, readily available without, any investment at a very reasonable price. So we have done this deal, long back, but now since the market is very, subdued as far as LNG is concerned, so I think, there is no progress. If there is any progress in future, we'll, tell you, but this is right now a non-binding agreement. There is no commitment on that.
Thank you so much, sir, and best wishes for the team.
Thank you. Ladies and gentlemen, we have Mr. Mishra connected in the conference. The next question is from the line of Amit Shah from BNP Paribas. Please go ahead.
Hi. Just one question. What is the current... What is the shortfall left from the long-term contracts perspective over the next one half from the Qatar off-taking perspective that needs to be met? Because this will be the last quarter, right? Is there any shortfall which can be made up in the fourth quarter because of the COVID?
As you know, that there were certain cargoes which we had not lifted due to COVID.
Right.
So those were classified as Force Majeure. Other than that, there is no shortfall during current year, and I think we'll be meeting all the targets, whatever were there, other than the 8 cargoes on which we had declared Force Majeure, which was also notified in the previous calls.
Okay, perfect. That's all from my side, and have a happy Diwali. Thank you so much.
Thank you. The next question is from the line of Amit Rastogi from UBS. Please go ahead.
Sir, good afternoon, and congratulations for wonderful set of numbers, and wish you a happy Diwali in advance. Sir, my question relates to the current spot markets of around $7. So do you see any impact on gas demand in India? And how do you think that gas demand can shape up in the coming year as well?
So this is spot market. Basically, if you look at, it is because of the winter season setting in, so it is because of that. But maybe after December, January, this price can again come down. But of course, Indian market, if you look at, it has already recovered, and it has now shown the resilience in terms of demand growth. And now, if you look at the consumption, which is around 150 MMSCMD in the last month itself, this shows that at least we have reached the pre-COVID level.
As far as the growth in consumption is concerned, there may not be substantial growth, but certainly, during the year, by end of year, we'll see that there is a growth, and maybe 3%-4%, it might be there, but we expect that it should happen.
Two, three months have been lost due to this pandemic, and certainly that is a loss to industry because there is a gap of consumption in that period. So we will try to make it up so that at least we can reach to previous year level and maybe 2%-3% growth, if possible, it should be done. But at this current price level, if you look at it, it is just because of the winter season, which is setting in right now. That's why this price is higher, but otherwise this may range in between $4-$6 in my view.
Okay. Sir, can you give us an update on the progress of East Coast Terminal? Like, are we going ahead? Which mode we are going ahead, and how much time it will take?
Yeah, we are still looking at the opportunity because on the East Coast, we want to have a terminal. The only thing, there are certain issues which are to be sorted out first. And one of the major issue I find is that we have to see the demand growth over there in next 10 years. So we are analyzing that aspect.
And moreover, there's an issue of pipeline connectivity. So now, this pipeline is coming up, this Urja pipeline, up there, and another pipeline will be there, which will be connecting to that place where we want. So I think this kind of logistics are there, then we will certainly do it.
Right now, there is an issue of connectivity and also demand perspective over there, because we are still analyzing whether there's a real demand over there, and at least we can have some percentage of capacity booking initially, so that there is a minimum anchor load over the terminal. At least we can assure ourselves that there will be return on that. These are the factors we have to first look into before undertaking this project.
Okay, sir. And sir, any timelines when you think that, we would be-
Timeline, we are not giving. We are not giving timeline, but of course, maybe within one year, we should decide that how we go forward. It should be within one year.
Okay. Great, sir. Thanks a lot, sir, and wish you a happy Diwali once again.
Thank you very much. Same to you.
Thank you. The next question is from the line of Vishnu from Spark Capital. Please go ahead.
Good morning, and thanks for your time, sir. Wanted to understand the tariff, post, I mean, post January, will you be taking a 5% hike?
Yeah, Vivek and Mukesh...
Yes, it will be. Good morning, this is Gyanendra Sharma. As per the agreement, our regasification tariff will get an escalation of 5%, which is from first January.
Got it. Sir, and post-January, what will be the tariff at Dahej and Kochi, if you could just answer?
Presently, it is 51.75, and you can just escalate by 5%.
54.34 is what it will work out to. Okay. For Kochi?
We mentioned that tariff is under discussion, so once it is finalized, we will of course let all the shareholders know about it, investors know about it.
Got it, sir. That is all my questions. Thank you.
Thank you. The next question is from the line of Aditya Suresh from Macquarie. Please go ahead.
Yeah. Hi, sir. Thank you. Just one question from me. So you're still generating a lot of free cash flow. It seems like your incremental CapEx is not meaningful. So in that context, can you just share your thoughts on the dividend going forward? You've clearly kind of come in with a high dividend over the past two years. Any reason to assume that won't be the case over the next, say, 12, 24 months? Thank you.
Yeah, actually, dividend we have already declared, but whatever projects are coming up in our way, we will undertake those projects. But right now, we cannot say anything about our future plans for dividend payout. But, of course, as long as we have enough cash and enough money and have profits, we'll continue to give the dividend to the stakeholders. It has been substantial. Last year also, 125% we have given. This year we have already given 80%. So I think, I see no reason why we should not give a handsome dividend to stakeholders.
Thank you.
Thank you. The next question is from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead.
Thanks for the call, sir. I had just one question regarding the progress on LNG transportation plans that you had. Can you just give us any details around that, or what has been happening on that front?
I think, G.K. Sharma, can you explain LNG transportation?
Pardon me, sir. Sorry,
LNG.
Repeat the question again.
Yeah. So I was just asking on terms of LNG you were using for the transportation sector. You were talking about plans around that, so how has been the progress on that?
See, there has been a substantial progress. We have already signed an agreement and agreement with Gujarat Gas, and our tender for setting up LNG infrastructure has already been done. It is in final stages of evaluation and award.
Further, we are in discussion with other OMCs and CGD companies to set up LNG station, and we are just working with these companies to develop the ecosystem, so that once the LNG infrastructure is there, and also we are in discussion with fleet owners for conversion of their vehicles. So we are expecting this, the ecosystem will develop in the next two years, and the demand will take up in next few years by 8-10 million ton in transportation sector itself.
Okay. And so any committed CapEx around it yet, in terms of your total CapEx plan for next year?
So I have already told you that we have CapEx plan of INR 1,200 crore for tanks, and then Jetty INR 1,300 crore in next 2-3 years. These are the CapEx plan. Otherwise, we are also looking at Sri Lanka terminal, having CapEx of around $300, and that is only after clearance given by Shell and the government. And, other part I have shown you, the Gopalpur terminal, which we are thinking on the East Coast, maybe in future. So these are our plans we are having.
Sir, I was more focusing on the LNG transportation side. Is there any committed CapEx?
LNG, LNG transportation, we have commitment of... Because if you look at this kind of business, what we are doing, we are not entering retail business. So what we are trying to do is to associate with CGD entities and OMCs, so that we can seed the business, and later on can sell our LNG directly to these, particular entities.
So we are associating with the, various, city gas distribution companies, and we have plan of setting up around, 5 station, maybe within very short time. Maybe 19 station we are taking approval from, other places, where we are tying up with various OMCs and CGDs, so that, we can seed and can, improve this business.
Because this is a segment, which is very, profitable and people can have, the benefit from this sector, and it has never been tapped. So our objective is to promote the usage of LNG in transportation sector, especially in long-haul trucks and intercity, state and intercity buses, so that, that sector can proliferate and, people can earn profits on that. So basic objective is not to go in retail.
Objective is to go to B2B business by selling LNG to CGD entities and OMCs. But initially, we have to seed the business. For that purpose, we are seeking some, this investment initially. But later on, maybe, when the people will see that there is a lot of, margin in this business, then they will automatically be attracted to it, and they will set up it.
Now anybody can set up LNG station. There is no restriction, that it should be only CGD entity. Even private entities can set up those LNG stations. So it's only initial period that we have to set up some LNG station along with some CGD entities and OMCs, and then it will take off, and people will do that.
Got it, sir. Thank you. Very clear.
Thank you. The next question is from the line of Chinmay Gandre from Bharti AXA Life. Please go ahead.
Yeah, sir, thank you. Giving a question. So just two quick questions. So above EBITDA, what is the index impact for the current quarter?
Yeah, but-
Yeah, the index impact is, as you know, that there is a INR 101 crore,
... cost of, at the cost of goods sold level, INR 101 crore has been knocked off as a cost.
Okay.
Then there is an income of, I mean, Forex income due to Forex restatement, which is INR 77 crore gain, and other gains are INR 8 crore. So the total, if you take the total gains at the PBDIT level, it comes to about INR 186 crore. The depreciation is INR 87 crore, and the finance cost is INR 81 crore. So at the PBT level, the net impact is INR 18 crore positive. Because of this, because of this time, this gain in Forex coming.
The Forex restatement would be part of other income, right?
It is part of other income. That is why you, you will see a surge in the other income.
Okay. And the inventory gain you mentioned, I missed out the number. You said INR 50 crore or INR 60 crore?
Inventory?
Yeah, it's revaluation...
Revaluation. Actually, you see, inventory revaluation is somewhere around $3, so it is about INR 70 crore.
Seventy crores.
That is over the, at the gross margin level.
Yeah. Okay, cool. Thank you.
Thank you. The next question is from the line of Sabri Hazarika from Emkay Global. Please go ahead.
Yeah, good morning, sir, and congratulations for a good set of numbers. Most of my questions have been answered. I just have a clarification. You mentioned the H2 CapEx would be around INR 105 crore. That's right?
Yes, Sabri, that's right.
Okay. And secondly, what would be the volumes for Gorgon during the quarter in the Dahej terminal?
Volume is already there, more than 100%.
Yeah, I mean, how much has been flowing to Dahej?
Dahej is around 63-64 MMSCMD, average.
No, no, I'm talking about the Gorgon volumes, which is 7-8 TBTU.
Okay. I think Vivek will tell, but 7-8 cargoes are coming there.
It would be around 7.5 TBTUs. 7.5. And secondly, you, Mr. Sharma mentioned that, around 8-10 million tons of LNG, retail LNG for CVs, that kind of a potential is expected. So, I mean, if I take a near term, maybe for the next 2-3 years, then what kind of volumes would be realistic for you to do in terms of LNG retail?
See, I'm Gyanendra Sharma. I mean, it has potential of 8-10 million tons. But initial years of ecosystem development, you know, it's a chicken and egg story. Infrastructure versus consumer getting ready. So at this point of time, immediately saying, but we are expecting at least 1 million ton volume should come in the initial three years.
In three years, you're expecting 1 million ton for your company to do? Okay.
Not only our company, I'm saying all over, and we be. Because initial infrastructure development and doing everything will take some time, and there are still a few things to be ironed out.
Right. And these five stations, you would be putting yourself as a testing, but later on, you believe that other players will see the benefit and then the retailing part will be done by themselves. That's right?
It is being done, and even, I think, everyone is realizing this, and Government of India is also understanding that this is crucial for India's dependence, reducing the dependence on crude. So Government of India is also pursuing it and advising the whole industry-
Right.
To go for it.
Okay. Okay, thank you so much, and all the best.
Thank you. The next question is from the line of Vineet Joshi from Goldman Sachs. Please go ahead.
Hi, sir, thanks a lot, and Happy Diwali to all of you. So my first question is on, you know, your Dahej expansion, I think, right? So this expansion, would you be looking to, like, utilize more for spot volumes, or you know, the idea is also to tie up volumes like your existing contracts?
Yeah, actually, we would like to book the volume, but at the same time, to look at the demand growth for LNG, it is growing rapidly. So, we hope that in future, how it will shape in, we cannot say, but we will prefer to have some capacity booking beforehand, if possible.
But even if it is not there, due to this demand growth of LNG, I think it should be utilized as we are doing it now, because even now we are having capacity booking only up to 15.75 MTPA, but still we are utilizing more than 100%, 17.5. It's 109% this time. So I think that should not be a big issue. Nowadays, having a commitment is not that easy, because already people are committed somewhere. So whatever is possible, we'll do. But of course, we'll try to book it beforehand if possible.
Okay. Okay, all right, sir. And, and, sir, with respect to the Tellurian deal, right, so, I mean, we have seen so many LNG projects getting deferred or canceled. So, I mean, would it be possible to give at least some timeline by when we can have, like, a final clarity whether, you know, you are interested in this deal or not?
Because listening to you, I mean, it did feel like that, you know, you were saying that there's a lot of cargoes which are out there, and there's no need for fixed investment to get such volumes. So like, if you can provide some clarity or some timeline in which you can provide clarity, that would be quite useful.
See, it's like that. You are anticipating too much from reading between the lines, if you look at. It's only non-binding agreement, which doesn't give any kind of commitment. We do such agreement across the globe, but it's only for exploring the possibility. It's never with a firm intention to invest somewhere or to just do it, because there are several aspects which has to be taken care of.
If we are making an investment, there should be some return on that. So these two aspects are altogether different. First thing is, we should get the cheapest LNG. Second issue is that there should be sufficient return on investment. So those factors are to be seen.
Looking at the kind of margins nowadays in LNG, it's not very lucrative to have investment done in liquefaction project, because the return is very low, so that will not suit our requirement. Moreover, investment is usually made when we get some additional benefit out of it.
But right now, when we are having LNG available at a very throwaway prices, then there is no need to invest money for this liquefaction terminal, because we are, in any case, getting a very cheaper LNG in the globe, across the globe. So there is no need to go for investment as of now. Let us see in future, because earlier it was thought of that if we will have investment in a liquefaction terminal, it will ensure a lower price of LNG, as well as ensure the security of supply.
But right now there is plenty of LNG available in the market. Anybody can go and buy it, and that's at a very throwaway prices. So there is... That's what I'm saying, that we should be more concerned with LNG than investment. Because investment is, in any case, if there is cheaper LNG, then available in the market, then we can think of, but that is not the case.
Yeah. Yeah.
We have to see that whether at all this is a good proposition or not, because right now it is not that good.
All right. So just lastly, sir, I think it's been like a third year now that we have entered in special dividend. So I mean, would you be looking to drop the word "special"? Because, you know, you've been paying fairly regularly and even increasing the dividend, right? So because that creates the impression that it's a one-off, right?
So, I mean, three years in a row, interim special dividend, I mean, it's like that, that would be quite useful if you can probably provide a clarity that it can continue in future as well. Because clearly, at least when we do the numbers, we see that there's a lot of free cash flow generation at Petronet. So maybe, I mean, I don't know, like, what, what's your view on, like, why are you using the word special dividend?
Special dividend is very much required, because anytime we can withdraw it. But if we do it regularly, you will say every time you are already giving, why you are not giving this time? So this is as long as we are giving it is okay, but once we will have CapEx, we will have some M&A opportunity, something else, then we will not give this. So that's why we are using this word.
But it should not be taken that it's a kind of one-off thing. It is a one-off thing, of course. It started like that only. But at the same time, it is not guaranteed every year. So that's why we are using this special word.
All right, sir. Thank, thanks a lot for your time, and, very happy Diwali to you.
Thank you very much. Same to you.
Thank you.
Thank you.
The next question is from the line of Vidyadhar Ginde from ICICI Securities Limited. Please go ahead.
Yeah, thank you. Good morning to everyone. I trust you are hearing me, I'm audible. So first question was on this Kochi terminal, regas charge, which, I think some answer was given earlier today. So just wanted clarity. You said that you might be fine with some small downside to current numbers.
So when you refer to downside to current number, is it below 79 or below 83.1? And secondly, is it that you will not go below 75, which I think you have said is the benchmark. If you go below that, there has to be provision for, diminution in the value of the, asset. So is, my understanding correct on that?
Yeah. Actually, it's not decided so far how far we will go. This is again a matter to be decided by our board. So we will not comment on this. But of course, there is a discussion going on, and if there is any outcome, we will let you know. But we cannot comment beforehand whether it will be this much or how much it will be, because this is premature, or rather we are pre-empting the right of our board by commenting on these things. It is not fair. It's not a decision which we can make right now.
What, what is the resolution mechanism? Because you might, both of you-
Resolution mechanism, I agree, but resolution has to be worked out by board only. Because in any case, stakeholders are also members of the board, so they can discuss across the board and work it out. But at the same time, we cannot say that how much it will be and how far we can go. So this is not right thing to comment right now.
... No, no. So what I'm trying to just understand is that, let's say, if you say that you are not going below 75, and the offtaker says, let's say, they want 60, then what is the resolution mechanism? What the independent directors decide, is it binding on anyone?
This is all hypothetical question. I cannot answer all these.
No, no, I'm only asking about the, not the numbers, forget the numbers. What I'm only asking is that, you are referring to independent directors, so what do they say? Is it binding or no, not really?
No, no. Whatever independent directors will say, they will be giving it to the board, then board has to take a final call.
Okay. That is not.
That is not binding. Independent directors can refer, will refer to board.
Yeah, but how is your board composition in terms of offtakers and what proportion of the board? Because if they, if the number is closer to what the independent directors and the offtakers, if they have a majority on the board-
This is again, you are talking with a different direction. This is not the right thing. You want-
Okay, fair enough. I think let's, we'll wait for the outcome.
You can see the Petronet LNG website, there you'll find the directors.
So basically, we were told that by end of this quarter it should happen when you were off the call.
It should not be, it should not be concluded, but we are still working on that. Not that we are... We are almost discussing almost every week or every-
Sure, sure.
Every three, four days, we are discussing the matter. No, we are working on it.
Yeah, no, no. When you were not there, we were told that by the end of the current quarter, by December, it will get done. So that is the current position, isn't it?
We are trying to work it out as per-
Okay, fair enough.
Yeah, yeah. Now, we are not giving any timeline, we are not giving.
Sure, sure.
Words used in the previous was that it is expected to be completed within this quarter. No, no, otherwise, nobody can give any guarantee.
Yeah, correct, correct.
Not a guarantee.
Please keep those words.
Sure, sure.
Any money will be worked out, again, will come to the board.
Okay.
That is, again, a question, so it may be even beyond the third quarter.
Okay, sure. So my second question was on this, Bengaluru, the pipeline to Bengaluru.
Yeah.
As and when this pipeline to Bangalore gets done, what kind of overall over a, let's say, a four- to five-year period, in general, and in light of this, potentially this pipeline to Bangalore happening, what kind of roadmap can you give us on the ramp-up of the Kochi terminal? And at what level does, I think, what happens to regas will also play a role, but at what utilization level does it break even?
I think first question I will answer that Bangalore pipeline certainly add to our volumes, and that has not been factored so far. But once this pipeline is coming up in next 3-4 years, it will add to our volume. Maybe our utilization level will be in the range of 50% maybe, or 60%. That could be the level which we can have. Another question you asked is?
Yeah, what is the breakeven for Kochi? At what-
Break even for Kochi, Debabrata, can you tell, break even for Kochi? Or anybody else who has...
The operational breakeven happens somewhere around 25% of utilization.
Cash profit?
Yeah, at operational level, yeah.
Hmm, okay. Last question on a little bit longer term.
But may I request you to please join the queue again?
Sure.
So that the participants waiting for you.
Sure, sure, sure, sure.
Thank you, sir.
One more request I would like to make. Kindly close it by 12 o'clock, because there is another meeting scheduled at 12:10. So I have to arrange for that, if you don't mind, please.
Sure, sir. The next question is from the line of Varadarajan Sivasankaran from Systematix. Please go ahead.
Thanks for taking my question, sir. I have two questions. One, on the LNG for transportation, CapEx for loading bays will be on your side. No... Is it a capital-intensive process? And what kind of numbers you, you can give us?
Loading base, we are having already in Dahej and Kochi. So I think we have 4 loading bays in Dahej and 1 at Kochi for this tanker. And otherwise, we are trying to have 2 more loading bays in Kochi. And it's not very capital-intensive, you can say, but of course, it will facilitate the uses of LNG in the industry.
We have more loading bays, because in time to come, if you look at, even CGDs which have been awarded in various years, so even they have to find some solution by this tanker mode only initially, because pipeline is not everywhere. So pipeline connectivity may take some time. In the meantime, they can use tankers for taking LNG to their GA. So this is helpful in, particularly in southern areas.
So I think that is the solution for the time being. We just have some more loading bays and transport LNG through tankers to those places where it is not. So I think this is why we are going for this loading base. But otherwise, LNG as the transportation fuel, which we have already explained, our GM Marketing has explained, GM Marketing has already explained that we are taking up this project, and very shortly you'll see that on pilot basis, we are having some 5-8 LNG stations, whereby we can see that trucks are moving LNG.
So this is how we are planning, and this is a segment even government is emphasizing, that we should use more LNG in transportation sector. Address the environmental concern and also to reduce the cost of running these trucks. So these are the objectives which are basically given by the Government of India. They have this objective, and we will fulfill it to installation of LNG station.
Sure. My second question is, are the variables which go into your tariff, hike, are being reviewed every three years, if I understand it right? It was due this year. Is a review done for anything you want to disclose from this?
Vivek and Vivek.
Sorry, could you repeat?
The variables which go into your tariff part are being reviewed every three years, as I understand. The review was due this year. Has the process completed? Anything which you want to share from that?
Depends on the request from offtakers, and nevertheless, so we do a continuous internal review from time to time, and that process for this year is ongoing, but we do not expect any adverse outcome.
Fair. My understanding is right, that the next review will be in three years or, unless demanded by the offtakers?
Contractually it's three years, but that one very limited subject, so that review has already been carried out by Petronet, but analyzed, but we don't expect any ...
Fair. Thank you.
Thank you. Ladies and gentlemen, due to our time constraints, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Okay, thank you very much. I once again thanks to all of you, because it's you only who are just enhancing our image in the market. And you are the people who are in fact important for us. So from time to time, I would like to have feedback from your side so that every suggestion you give, everything you tell us, we ponder it seriously within ourselves and discuss with our team.
And of course, in future also we continue to give the best performance. The only thing I would like that we should not be too much worried about certain factors which are very remote. Like, one, I had explained Tellurian factor.
It is not impacting our business immediately in the near future, so it is not a binding kind of thing, so we should not be too much worried about those things. And you should try to talk to us if there is any issue. And perhaps the kind of business model we are having is a robust business model, and it will continue to give best return to the shareholders.
This is my commitment. And in future, we will, we are taking up the projects, and the only those projects which are profitable we will be taking up. With this, I would like to close this conference. Anything else, you can please let us know.