GAIL (India) Limited

Ladies and gentlemen, good day and welcome to the Jail India Limited Q2 and H1 FI20 earnings conference call hosted by Antics Stock Broking Limited. As a reminder, all parts of the lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Tiwari from Antique Stock Broking Limited.

Thank you and over to you, sir. Thank you, Neelam. Good day. On behalf of Antique Stock Broking Limited, I welcome everyone to Gale India's second quarter earning call. We have the pleasure of having with us today the senior management team from Gale led by Mr. A.K. Tiwari, Director of Finance. Without much ado, I hand over the floor to Gale's management. Over to you, sir.

Thank you. Thank you, Nitin. A very good evening to everybody and related Deepavali and Chhatruja to all of you. The physical and financial performance for the quarter ended September 2019 are already with you, and the same has also been made available on the GAIL website. I presume that all of you have gone through the same. I would like to state that the management is concerned to maintain the profitability at its best and working regularly to arrest the lacunae to improve the operational efficiency. Various cost-cutting and efficiency measures, timely completion of project, retain and increase the customer base has been a continuous focus area, and GAID is also following highest standard for safety and upkeep of its assets. Further, I would like to emphasize that the company has taken various risk mitigation measures against challenges existing internal and external environment. Besides this, the GAIL management ensures that transparent corporate government principles to their stakeholders and shareholders. Now, let me give some insight for the quarter. There have been robust physical performance during Q2 in almost all segments as compared with the previous Q1. Polymer production increased by 93,000 metric tons from 1,35,000 metric tons to 2,28,000 metric tons. Polymer sales increased by 81,000 metric tons from 1,36,000 metric tons to 2,17,000 metric tons. LHC production increased by 31,000 metric tons from 2,98,000 to 3,29,000 metric tons. LHC cell increased by 33,000 metric tons from 2,96,000 metric tons to 3,29,000 metric tons. Gas transmission has increased by 3.29 mm SEMD from 105,000 105.41 mm CMD to 108.7 mm CMD. LPG transmission by 1,72,000 metric tons from 8,27,000 metric tons to 99,000 metric tons.

However, there is... Ladies and gentlemen, please stay connected. The line for the management got disconnected.

Thank you.

Ladies and gentlemen, thank you for your patience. We have the management back to the main call. Good.

Hello? Hello? Yes, sir, go ahead. Nitin? Hello?

Yes, sir, please go ahead. You are connected.

So should I again start from the beginning?

No, I think we have the data around transmission of gas. So we can start and go ahead and view on that data.

We have data. Gas transmission, I have told, I think so. And then LPG transmission by 1,72,000 metric ton from 8,27,000 to 9,99,000 metric ton. However, there is a reduction in gas sales by 1.83 MMSMD mainly due to scheduling of cargo which will be improved in coming quarters and is cyclical. I feel proud to state that Gail Pata got first position in 16th National Award for Excellence in Cost Management 2018, organized by the Institute of Cost Accountants of India under category Mega, on account of various measures taken in efficiencies and cost. Further, I am pleased to inform that overall capacity utilization in petrochemicals for the second quarter is 112%, with capacity utilization of Pacha 2 as 109%, and the PC2 has achieved 100 percent capacity for the first time. The operational efficiency is ratified from the point that after attaining the highest ever polymer production of 79,982 metric tons in the month of August 2019, Gale has surpassed this highest and made new record of 80,488 metric tons in the month of October 2019. The improved physical performance has given positive contribution of Rs. 278 crores in petrochemicals, Rs. 36 crores in LSC, Rs. 39 crores in energy transmission and Rs. 27 crores in LPG transmission. Total LNG cargo sold outside India is 9 in Q2 2020 as against 30 cargo in Q1 FY20, mainly due to fewer cargo from Dominion Cove due to seasonal shutdown. The profitability depends upon both external and internal factors. Although company has improved upon internal factors, but there were various external factors, that is price, oversupply, economic slowdown, which were not in favor of GAIL and has adversely impacted overall profitability of the company. The average price realization of polymer has decreased by Rs. 6,300 per metric ton to Rs. 70,370 per metric ton during Q2 in comparison to Rs. 76,676 per metric ton in Q1. Similarly, the average price realization of LSC has also decreased significantly by 25%, that is Rs. 10,100 per metric ton Rs. 30,220 per metric ton in Q2 as against Rs. 40,329 per metric ton in Q1. Such negative trend of price has reduced the profit of petrochemical and LHC. The main reason for reduction in petrochemical prices are capacity addition in global market and consistent lower crude price, less demand due to economic slowdown global economic condition and environment, U.S.-China trade war, and weak market sentiment on use or ban on single-use plastics. As we are aware that the movement of gas price depends upon the demand and supply factors, the amount of natural gas production, and its availability in the global market. geopolitical situation, availability of other fuels, and economic growth decides the demand and supply prices of natural gas. During the quarter ended September 2019, the price of spot gases are continuously on the lower side due to its oversupply. DS West India prices during the quarter were lower than the prices in previous quarters. In order to retain the market, some of the volumes were sold at lower price in domestic and international market. These reasons resulted in lower profitability in the gas marketing segment. Gas transmission volume has increased by 3.29 mmHg from 105.41 mmHg to 108.70 mmHg during quarter two. However, there were one time impact in the profitability on account of the provision refund toward fixed monthly transmission charges of Rs. 186 crore to various customers. All fixed charges and spur line charges have been submuted in the final tariff of integrated SVJ natural gas pipeline notified by PNGRB in June 19. In pursuance to section 115 BBA of income tax rate announced by the Government of India through taxation laws, the company has irrecoverable option of shifting to lower tax at 25.17 from 34.94 along with the consequent reduction in the certain taxes incentives including lapses of accumulated MET credits. The company is evaluating the adoption of new tax option and has not exercised this option for current period. The options are under evaluation. We will be exercising the subsequent period. Considering the above, during the quarter ended 30th September 2019, Gail has achieved gross sale of 18,010 crores in Q2 FY20 versus 18,276 crores in Q1 FY20. That is decreased by 1%. PVT is Rs. 1,536 crore in Q2 FY20 versus 1,981 crore in Q1 FY20, decrease of 22%. The PACT is Rs. 1,064 crore in Q2 FY20 in comparison to Q1 1,288 crore, decrease of 17%. During half-year ended September 2019, CAPEX achieved its Rs. 2,400 crores including equity contribution mainly in pipeline. Equity contribution is around 150 crores. The expected CAPEX of FY19-20 is Rs. 7,000 crores and for 2021 is also around 7,000 crores mainly on pipeline. The total CAPEX in JSBDPL project including BGPL up to S1 FY20 is over 8,000 crores and total commitment has been to the extent of around 13,000 crores. We have received the capital grant of Rs. 3,221 crores due up to that. The project of the Dovi-Durgapur section of GSBDPL is going on and likely to be completed in FY20 345 kilometers and cell to matrix will start for up to 2.5 mm CMT. With the inauguration of gas supply in Ranchi on 23rd August 2019 and recently at Jamshedpur on 1st November 2019, The cash supply of all six EGDs awarded to GAIL, that is Varanasi, Patna, Katak, Bhubaneswar, Ranchi and Jaipur has started. The commissioning of KKMPPL Section 1 has commissioned and balanced pipeline up to Mangalore are under advanced stage of completion and targeted to be completed and commissioned by December 2019. to Ramagunda Fertilizer and Chemical Plant has already started by KL, and pre-commissioning activity at plant is going on. The plant is likely to be commissioned in FY19-20, and with this, the gaps apply to the extent of two MMHMD will start. The tender for breakwater facility of KLPL is under process. The bid received are under prize bid stage, and in this month. Now I would like to finish my briefing here and would request to start question and answer from the investors. Thank you very much.

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 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. A reminder, you may press star and one to ask the question. The first question is from the line of S. Ramesh from Nirmal Bank. Please go ahead.

Good evening, sir. Good evening, gentlemen. In terms of your gas transmission business, can you give us some sense in terms of Which are the pipelines where you have some room for expanding volume, say, in the second half, and which are the new sections which we can expect to start operations, say, in FY21-22?

Most of the pipelines which was in FY21, FYF in Q1-20, the same pipeline were there. We are going to add with the in the Jagdishpur-Haldia pipeline which are getting commissioned and we are adding to the MATICS. And the pipelines which are there are almost the same which were there in the Q1.

Okay. So in terms of volume growth in the transmission business, what is the kind of volume growth we can expect in the second half and say the next two, three years?

The volume growth will be slightly more with the commissioning of the fertilizer plants as well as other CGDs which are there. And growth will be there. We can't give you an exact number for that, but it will be a growth.

Okay. And the second part is now in terms of the overall gas market, do you see any potential for the underutilized gas-based power plants arriving and would that be a segment where you see some additional growth coming in?

You are talking about the standard power plant?

Yes.

We are taking up the matter with the power ministry and we are trying to find out some solutions whether they can use more gas in the standard power plant. Some mechanism is being worked out And we have also, with our own, have started giving gas to some of the standard power plants. They are using it. They are taking in between.

So can you give us a sense in terms of how much is the growth here in the power plants? Because traditionally, they have been operating at about 23%, but in the June data, we saw some increase in the gas-based power plants. So is that a trend we can expect? What is the You know, volume in MMSCMD you're seeing, say, this year in terms of growth in the power sector?

See, we are ready with the pipeline, and we are ready with the gas. It is up to the power plant consumers. They have to take. So we are also trying to find out how best we can do it. We have everything. We have gas. We have pipelines. Ultimately, they have to take it, their economics.

Yeah, so I'm just trying to understand. Can you just give us the number in terms of the incremental potential there, if they are willing to take?

Up to date, I think we are giving around 2 to 3 mm SMD of gas to this standard power plant additional, I think, that we have given. But going forward, there are good potential we can give, and it depends upon the power plant they want to utilize.

Okay, sir. Thank you.

I'll come back. Thank you very much. Thank you.

Thank you very much. A request to all the participants, please restrict to two questions per participant so the management can address all the questions. Next question is from the line of Amit Rastogi from UBS Securities. Please go ahead.

Sir, good evening. Sir, could you explain us this provision of 180 crore in the transmission segment? What is the recurring impact of this and why it has occurred?

Okay. This 186 crore is fixed monthly transmission charges, which was earlier subdued in the final tariff of HBJ. This is one time only. We have to refund to the customers, various customers, this 186 crore. And this is one time, and this has come after we got the tariff order of HBJ and Liverpool. So that is one time only, not a recurring.

So there is no recurring impact of this, because when you're refunding, this means that there has to be some recurring impact.

No, there is no recurring. This is one time. From the past, we have to refund to it, because tariff order, which is there, this fixed monthly charges, fixed monthly transmission charges, we have not to charge further, and we have to refund. So that is there. OK.

Okay. And so on your gas marketing business, so we have sold around 94 MMCMD. Yes. So could you give us a break-up, like how much gas is sold in India and what is the source of that, like U.S.

gas and RAS gas and maybe that's from... See, total sale is... 94 this time and up to H1 is 95.63. So KPM is around you can say is 44. MMACMD, PMT is around 3.8. RLNG which is there is around 23 MMACMD, 22 MMACMD. In between, we have taken a spot also, 7.12 mmHg. So taken together is, and we have overseas cell is 10.52 mmHg. So up to H1, I'm talking about the H1. So 95.63 mmHg is there. So overseas cell is 10.52 mmHg.

Overseas is also included in this 95?

Yes. Naturally. This is our cell.

Yeah. Sir, then APM you mentioned 44. PMT 3.8. Our LNG is 23.

22, 22 you can say. 28.

Yeah, okay.

And then there are ONGC and others also too. And midterm is there around 6.42. Spot is 7. That way. 3.42 midterm. And, sir, how much is ONGC? ONGC is, again, I have told about 43.99, and it includes others also.

It includes others also. Okay, sir. Thank you.

Thank you.

Thank you very much. Next question is from the line of Penkan Parekh from J.P. Morgan. Please go ahead.

Thank you very much. Just continuing on the marketing segment, I think that you mentioned during your opening comments that some cargoes had to be sold at a lower price. So just trying to understand how have the U.S. cargoes been placed in this quarter and how do we understand the very, very sharp decline in segment profitability from 860 crores to 250 crores in the marketing segment? Was it related to purely the U.S. cargoes and were there any issues in terms of prices over there?

See, so far as the U.S. volume is concerned, around 90 cargoes we have to take during the year. And we have taken around 42 cargoes this time up to September. There are the cyclical things are there where if some shutdown was there, so some cargoes we have not taken. So we are going to complete the total volume whether we are selling to in the international market or we are bringing to in India. So that way the volume which are there, committed volume are there, we are taking up. Now as you know that West India price which is there, spot prices is ranging around $4 to $5 which are there. And sometimes in order to retain the customers, we have to bid. So sometimes what happens, some of the volumes we have to sell at a low price in comparison with the spot price which are available. So that has given negative things. But it doesn't mean that cargo to cargo-wise we are going to make some plus. Overall, there is a marketing segment improvement is there. though it may not be in comparison with the Q1, but it is there and overall we are going to have plus in this year.

Sure, sir. So just trying to understand this point better, so how many cargoes in this quarter were sold at prices below the Henry Up prices? I mean, essentially I would assume that these are the unhedged cargoes and to that extent the realizations in order to retain the customer was below the Henry Up price. So going forward, sir, can we get a sense of broadly the number of cargoes you think, you know, will be sold at market prices or spot prices?

This is a very dynamic situation, you know. It is very difficult to give cargo to cargo-wise numbers because we are doing destinations where we are doing times where, then we are doing hedging also. Then depending upon the volume which is there, we are purchasing the spot also. So in totality the kitty which is there, is on the plus side, and depending upon the spot prices which are there, sometimes we have to bid with the customers because to get the volume. So some of them hits are there. So it is very difficult to say which cargo-wise it is because we have around 200 cargoes in total we are selling in separate, in totality transactions which are there from the coming period also, 21 we have lined up. So it depends upon the price volume. As I've already told that many factors, internal and external, are there. So that is there. But ultimately, we are de-risking many things. Sometimes we have to sell the cargoes on losses also. That is there.

This is a business cycle which is there. Understood. Thank you very much, sir. Okay. Thank you.

Thank you very much. Next question is from the line of Rohit Ahuja from BOV Capital Markets. Please go ahead.

Hi, sir. Thanks for the opportunity.

Thank you very much. Thank you. Welcome.

Just to follow up to the last question, you mentioned you have obligations to take 90 cargoes from U.S. Yes. In September, you have taken 40 cargoes.

September we have taken.

For the year, how will you accommodate 50 in next three months, three to four months?

42 we have taken, right? And up to September only, that scheduling and planning has already been done. There is no, that we are going to miss any cargo. Either we will sell in the international market or we will bring it. That is already done.

So, okay, so you are not going to, like, defer some cargoes or... Nothing like that.

Sometimes, sometimes, Dominion, the US, DCC, Dominion, shutdown is there. So, scheduling, rescheduling is always done. I am just giving you the figure. We are committed to take all the cargoes and we'll take it.

Just to add it, see, we are short by three cargoes only for six months. It should have been 45. Now it is 42. That's all. Because 20-day shutdown was there in the plant.

This is talking about fiscal year. Fiscal year target or this is calendar year target?

It's fiscal year I'm talking about, not calendar year. Until April, you have to, okay. Up to March.

So, sir, then coming back to the question on your marketing, gas trading a bit declining so much. So, you've been maintaining a commentary over the last four or five quarters that most of your cargoes are hedged from U.S., But now apparently you are mentioning that you had to bear losses on some of the cargoes. So do we see that the hedges which were there earlier also may have been completed or how is the situation currently?

Hedging times or destinations, these are the continuous process. It is not that it is done now only. We have committed up to, we have done up to FY20, December 21 also we have done some of the cargoes. And up to FY20, we have almost done everything. So we have scheduled all the things, but sometimes what happens, we have to, looking at the market condition, we have to do it. It doesn't mean that our spread is going to be negative. We'll be positive. We'll be positive. And we are positive.

So from that, you know, just a last question on this particular thing. So if we see these spot LNG prices right now around $5 versus your delivered price should be, let's say around 8.5 for US. So is that the reason why you had to sell it at a negative rate?

No, no, no, no, no. Please try to understand. I have given one of the reasons. It is not that, uh, uh, we are selling all the cargoes linked with the spot prices or like that. It is one of the things. I have given the reasons for that. But going forward, we have back-to-back also. We have also tied up. We have hedged also. So there is no going to have in the third and fourth quarter, it will plus. Okay. Thank you, sir.

Thank you very much. Next question is from the line of Raj Gandhi from SBI Mutual Fund. Please go ahead.

Hi, sir. Thanks a lot. Sir, just again on that marketing US volumes itself. So you mentioned you are fully hedged, but then you said despite that you had to kind of accommodate the customer sort of. So can you just explain this? Because you again repeated that you are fully hedged for FY20. So if you are fully hedged for FY20, then... Then what does it mean when you say you are fully hedged for FY20? See, we said that we are either fully hedged or we are fully sold. Okay? Okay. So now suppose I am selling Henry Hub Cargo based on crude. Our crude has fallen. So my revenue goes down. Right? But in those cases you had said that you already shot crude to that extent. So, you know, we were locked on that. That also we have done. But it depends. Some cargoes were, you know, crude to crude also. Handing up to crude also. Okay. And then another thing what happened, we have sold handing up to handing up also. And then, you know, this... July, August, September. This is called shoulder month quarter. Shoulder month. So, wherein the demand for heating for natural gas in western world is very low. So, spot in this quarter has touched even 3.5, 3.6 dollars. So, few cargos which we have left for balancing. Okay. We have to sell at than prevailing comparative spot prices. But the spot prices for next quarter which is winter month will be 5 plus always. And US volume doesn't cost us $8.5 in India. This is wrong. It is even below $7. It is below $7. Okay. If you could just explain this, what are the charges? Because I believe also one component is if you pass that canal, there are some additional over and above the shipping cost, there are some additional levies and all of that to pass certain routes. So If you could explain this, what would be the landed cost in India with the breakup of the component, it will be great. It is again very dynamic, but the worst, it is very dynamic. We have been able to get a cargo in India, you can say that at 50 cents also from US to India and sometimes at 1.5 and 1.75 dollar also. Assuming you don't get a swap or something, you have to physically get the same cargo in such a scenario? If that is the scenario, then shipping cost is around $1.7, yes. There are any additional levies and all of that to pass, let's say, if you pass through the Suez Canal? Are there any additional levies? All inclusive.

These are all inclusive.

Okay, okay. And just one last question. AGR ruling on that, you know, Supreme Court ruling on the telecom license thing, what Do you foresee any, you know, it will be very, isn't it just a small part of the revenue where that license, any fallout of that ruling you see?

Sir, whatever news you have seen in the, this we have given our reply to there. And there is no, there is no charges levied to us.

But what is our stand, what is our stand on it? Because if you could explain. The license itself has expired in 2017. Okay. And we have not done any business. We have done no business whatsoever. So, therefore, nothing is liable on us. Okay. Okay. Okay. Sure. Thanks a lot.

Thank you very much. Anyone who wishes to ask a question, you may press star and 1. Next question is from . From ICSA Securities. Please go ahead.

Thank you. Good evening. I just wanted a little more clarification on the discussion we had on this gas marketing. So what I'm trying to understand is that you people keep some cargos untied up. And so was this less low EBITDA from this business in this quarter because of on these untied up cargoes you are not doing well or is it because of some cargoes where the hedging part of the story didn't go well or is it a combination of both it's a combination of two three things few are this and then also you know some of the plants which we were expecting to get commissioned in June July 2019 itself they are delayed So the volume which we thought that we will bring to India for those plants, but because those plants were delayed, we could not bring it to India and we had to sell it at the spot market.

So have those plants started now?

One was delayed, so one has started, but two are still not. And there is no takeover pay with those plants? No, till they don't start, there is no takeover pay. So let's assume that this problem had not occurred, that these plants had started on time. Then would things have been much better?

Yes, definitely.

So are you saying that the hit from that part is much more than that from selling some cargos at spot prices? Rough idea, if you could give us.

That is there because some of the plants have not started.

Can you give us some idea as to these volumes with these plants which were delayed? What was the rough volume in MMCMD, if you can?

Ramagundam is around two.

At least two plants. Two were delayed and not yet commissioned and one was delayed for about four or five months, rather six months.

Around six.

Three plants will take up around the six MMCMD. So, out of that, you can say that 2 has come up, but 4 has not yet. So, you are saying, out of, so, last quarter, you were hit to the extent of 6 mm, seemed a volume you lost, which you otherwise were expecting. 4, you can say 4. 4, and what is the situation for Q3?

We are going to improve that, because this Ramagundam is going to start...

So one leg of the transaction which does not happen is this expected volume did not happen. And does this get compounded by the fact then that then it needs to be sold at spot?

To some extent.

Not all of it may have been sold at spot.

It depends again upon the prices. It depends upon the international demand.

I'm talking of the current situation only. I'm not talking general. Basically, we probably have had a very, very weird situation where we had such low spot LNG prices and we hopefully may not have it for too long in future again. So this is probably a one-off. But trying to understand that, was this situation of some of this demand not coming up? together with the low spot price. So let's say these plans had not come up, but if let's say spot prices were at 8, would you still have had this hit? No, no, we would have made profits rather, huge profits. So basically you had to sell, because these consumers didn't come through, you had to basically sell. When do you expect these guys, when do you expect all this 6mm SMD demand to come up?

Gosh.

So right now you have two out of six which you could have in the last quarter and another four MMSMD, those plants have to start. Next six months. So all these six MMSMD demand is expected to start from April? It may happen a little early also. One of the plants can happen a little early also and one can take even six, seven months. Okay, so one is this quarter or next quarter?

Sorry to cut you off, Mr. Vidyadhar. I'll have to ask you to come back in the question queue.

No, this is the same question, boss. One can come up in three, four months, and the second should come up in six, seven months. Tentatively.

Hello? Yeah? Yeah.

Mr. Vidyadhar, are you there? Yeah, yeah, I'm there. So, that's it from me. Just one last thing in this context. So, hedging did not hurt you in any way. It was mainly these two things which hurt you, the spot and the delay in these consumptions. Hedging was roughly fine.

Hedging was fine and there are a mix of the things out there. It is very difficult to give you the number one by one. I request you come down, we'll give you better details for that.

Sure, sure. Sir, how do things now look for... Sir, sorry to cut you off, sir.

I'll have to ask to come back in the question queue. Thank you. The next question is from the line of Probal S from Centrum Broking. Please go ahead.

Hi, sir. Can you hear me? Yeah, yeah, please go on. Hello, sir. Thank you for the opportunity. Sir, in terms of, you know, this gas trading business, we obviously have spoken a lot about it. But what I wanted to get a sense of was that in the next six months, assuming that all these plants are up and running, in the fourth quarter, can we expect a return to the normalized run rate? Obviously, I'm assuming that spot energy prices get back to their normal levels of, you know, somewhere around 10%, 11% linkage to crude. which translates to maybe about seven odd dollars. And that kind of a price with these plans getting commissioned, can we then expect that the run rate will get back to, you know, maybe sort of six, seven billion a quarter, which we have been doing? Yeah, yeah.

It is going to improve.

Okay. And secondly, sir, with the kind of, you know, any guidance you can give of, let's say, for transmission volumes or overall gas demand in the country, What kind of exit rate should we be looking at for the gas transmission business for the 520? Because you had earlier mentioned that it would be not too much of growth, but we have seen almost a 3 mm CND growth in this quarter. And indications for even the third quarter indicate that volumes can continue to grow a little bit. So is it fair to assume that we can actually start 110 plus by the end of the year or even earlier?

This year we may touch, but coming forward we are going to improve that rate. More than 100 channels.

That is for FY21, you're saying, right? Yeah. Okay. The last question, in the petrochemical segment, despite, of course, the production, you know, running ahead of estimate, obviously, EBITDA has, you know, continued to remain muted. So, is it that some of the newer grades that we had spoken about is expected to get us some more of a premium pricing? about 10-12% of our overall production, which is expected to be the premium grade of plastics. Is that still not getting the kind of pricing premium that we expected? And what's the outlook that we have in terms of demand scenario or pricing for petrochemicals?

Kamal, you want to say? Actually, what has happened is overall the prices have fallen quite steeply. And if you compare it with Q1, there are already $100, $120 plus drop has been there in all the prices. There is oversupply as well as the fall in prices. That is what is creating pressure on the prices. Even on the grades, it creates what we call them. Overall, there is too much of a fall in the prices which has actually given us a hit.

Okay. As I have already explained that the prices sharply has come down in comparison to the Q1. If you compare with the H1 prices of the polymer, there is a heat of around 18,000 per metric ton. But we are expecting from December onwards the prices are going to increase. And we have sold above the IPP prices always. So that is there, international prices which are there. So that way we are trying to mitigate these things which are there. That way we expect better in the petrochemical segment in the days to come.

Sir, last question related to this. Can we have a sense of the gas mix that is being used by the petrochemical segment then? I believe you had mentioned it's sort of 50-50 between term LNG and short term. Is that roughly the mix still that is being used?

I can't give you the exact, but it is mixed. RLNG is there. Total RLNG is there.

It's not possible to give in terms of what price, I mean, how much of short term and how much of long term is being used there?

It is best available which are there we are doing. It is not going changing. We can't give you any mix that way. It changes month to month. Month to month. RLNG is there. There is no allocated price. Yes, it's there.

Okay. All right, sir. Thank you so much, sir.

Thank you.

Thank you very much. Next question is from the line of Vikas Jain from CLSA. Please go ahead.

All right, sir. Thanks for taking my question. I have two of them. Number one is this one-off that you mentioned of about 186 crore. So this is something which would have been adjusted with revenues of the segment? I mean, your revenue would be lower? Or would this be some kind of provision that you would have created? This is earlier revenue which will now be written off?

Is that how it will be? This is the revenue which we have taken earlier. Now we have to give back. Now the revenue has been reduced because of it. Yes.

And this is linked to earlier years or this is linked to the last quarter?

This is linked to the earlier years.

Okay. And so this is 186 crore all adjusted in this quarter. Is that correct?

Yes, yes. Because tariff order came in the month of July or June like that. So we have calculated and then we have given. Okay.

Sure. And, sir, a lot of discussion on marketing. I mean, just to kind of – because as you had even earlier said that your hedging policy is a little complicated and all of that. So given that this first half has been made up of a very good quarter and a poor quarter, which is this one, the current EBIT that you have for this particular first half is about 11 billion rupees or so, 1100 crores or so. So this, you think that this can be improved in the second half based on all the available information that you have? Perhaps these new capacities may still not come up by the time, you know, not all of them will come up by the end of the year. So you think, because, you know, if you were to look at last year, last year, of course, we were in the range of closer to 2,800 crore plus capacity. for the full year. So this year at least, will we be able to, in the second half, will it be better than first half? I mean, will we have a growth on a half-to-half basis?

We'll be better than this quarter. And overall, there will be further improvement, but it will not touch the last year. It will not touch the last year. Okay.

Thank you so much.

Thank you very much. Next question is from the line of Rakesh Sethia from HSBC.

Please go ahead. Thank you for the opportunity. Two questions from my side. First one on the petrochemical outlook. Is it fair to say that if the prices fall further, and we've already seen some evidence, the month, November month has been sort of trending lower. would you look to sort of rationalize your production from the petrochemical plant? Does it make sense to operate the plant if it makes EBITDA losses?

Actually, I mean, that's not the case till now. And we are able to recover our operating costs and we are way above the variable cost. So that's not the case as of now. And all these reports are suggesting prices to go up from December If you see the latest reports from ICIH or any other, they're suggesting a little bit of increase from December through the next quarter, you know, that quarter one of 2020. So we see, you know, better outlook comparatively, but we're keeping a close watch on that.

Adding further, the demand is also increasing, so there is oversupply. The overall demand is also increasing, and whatever we are producing, we are able to sell it. So there is a distressed price across all the petrochemical grades out there. But this is cyclical only. I think it will improve further.

Understood, sir. Sir, if I could ask about the status of the Kochi-Mangalore pipeline. And third one is obviously, sir, the news about, you know, breaking up the company into two parts, doing something about unbundling of transmission and marketing keeps on coming in the media. So anything you can highlight to us? Has there been any progress? Is there, has the government or has reached out to you? But is there any sort of discussion about which the management is aware of and gets on the card?

See, so far as the Kochi-Bangalore pipeline is concerned, the first section has already been commissioned. And the rest six sections are under its advanced stage of completion. And these are targeted to be completed by December 2019. So this will be operational this year only. Second question is about the news. I think whatever news you are hearing, we are also hearing. There is no such further thing. We are looking through the papers. But we are intact at present. And anything comes up, we'll definitely inform you.

So the government has not reached out to the management of Gayland in any form. Is this a fair conclusion to take it away from this call?

If there is anything, we'll inform you. Because this will be an important event. We'll inform you if something is there.

Understood, sir. Thank you very much for the opportunity.

The next question is from the from HDFC. Please go ahead.

Good evening, sir. I missed this point on the fertilizer plants. The second is and which is the third one, sir? Chambal. Chambal fertilizer. So Chambal is already commissioned, right? It is taking gas. Ramagundam you are saying should happen before this fiscal year end and Metix should be next year, is it?

Something like this. Besides this, actually there were two more units which were down in this quarter. Two more fertilizer units were down. Juwari and one unit of Nagarjun fertilizer. So you know that volume also we are supposed to dispose of in spot market. So we will raise take-out pay as per contract, but that take-out pay claim is raised by the end of the calendar year, after the end of the calendar year.

And by then they will actually compensate the volume also?

Yes, yes. Okay. That is the reason for all in the volume and, you know, to do a performance at that volume because it was otherwise tied up, good link, back to back, but we had to sell it in the spot market.

Also, sir, the reversal that we have taken in the transmission segment, now the tariff order is actually applicable on a prospective basis, right? You don't have to compensate customers for the past tariff.

Yes. But this is related, this six-monthly transmission charges, which are additional charges from the customers. Now, in this tariff, it has been subdued. So, we will not be charging further. So, we have to refund this amount.

And it is multiple years that you have been doing this separate charging which you are actually doing a composite charging now and that is why this reversal had to happen.

Yes, this was as per the PMGRD order only.

Okay. And the impact as pertains to Q1 of this year would be how much, sir?

No further impact. No, there is no further impact. This is one-time settlement only, one-time adjustment.

Okay. Great, sir. Thank you very much for the answer.

Thank you. Thank you very much. Next question is from the line of Vinit Joshi from Goldman Sachs. Please go ahead.

Thanks a lot, sir. I just wanted to check on LPG realization. I mean, of course, it has come down a lot in the current quarter, but can you just give us some color? I mean, how did it progress in the quarter, and what is it looking like in October? Has it gone up, or it has remained there, or has it further come down?

The LHC price is this LPG.

LPG. LPG, yeah.

Just one minute. Prices of LPG, including LHC, which are there, has come down by 25%. And in the month of October, this has increased by 4,000 per metric ton. So we are seeing increasing trends. But if we compare with the quarter one and quarter two, there is a sharp decrease.

Okay, so while it has gone up, it is still lower than first quarter, is what you're saying? Yes, lower than first quarter. Okay, all right, sir. And, sir, this is a change in the tax rates, right? So will that impact our tariffs in any way in terms of, like, you know, the post-tax IRR, which is fixed for our pipelines? Does it mean that, you know, the tariffs could be revised in future because the tax rates have been cut down, or is that tax rate separate?

There are multiple issues behind that, whether this will impact or not. PNGRB is taking a look for that, and there are multiple reasons. Post-tax is there, there are the tariffs which have already been announced, and so many other factors are there. So PNGRB has not taken any call at present. If something is there, I think we will inform you.

Okay, but it will not be like a cash negative for you, right? Even if it is whatever call the P&GRB takes, it shouldn't be a cash negative for you.

It should not be. All right.

Getting those returns. We are way below those returns now.

Yeah. Our return is not at par with the 12% post tax. So they will also consider whatever the tax is there, adjustment is there. So they are taking, evaluating whatever the way is there.

Okay. And so I think I heard you say that you take gas for your pet chem plants on a best-case basis. So is it fair to say then everything that you would have taken would be spot because spot prices have been way below long-term LNG prices for quite some time now. So if you are doing this kind of best-case price for your petrochemical segment, are you taking all spot LNG?

No, no, no, not take it because plant cannot run on the spot LNG. We have to tie a further.

See, we already have gas in portfolio, so we will not procure spot price gas further for this plant. Okay.

So what is that gas which is always, which you are using for this? That's what I think the question was from the other participant. So if you know that it's tied up, then you can tell us what that gas is, right?

That keeps varying. For example, now the plants are closed. Some fertilizer plants are closed. So I have two options, either to buy, to consume this in my plant or sell it in market and then again buy a spot of gas for petrochemical plant, which is ridiculous. I'll be unnecessarily incurring double taxation on transactions on both the sides. So it keeps varying. If I have gas, sufficient gas, contracted gas, and other customers are not taking that, I have to divert that gas. But if other customers are up and running, then I can run this plant up to 80, 90 percent on spot also.

Okay. Okay. And for LPG and LPG segment, I mean, is that all domestic gas or does it also have some LNG in it?

Only domestic.

Okay. All right. Thanks a lot, sir.

Thank you very much. Next question is from the line of Mayank Maheshwari from Morgan Stanley. Please go ahead. Mayank Maheshwari Thank you for the call, sir. Two questions from my side. One was regarding the petrochemical division. Can you just help us understand of how sustainable you think now the Rundates and Pata 2 will be? Do you think that this is now a steady state kind of a run rate that we can assume going ahead?

Yeah, yeah. The Pata plant is stable and it will be stable. Okay. So we'll be running at this speed. There are no further shutdowns that you're expecting for... It will be annual shutdown or something like that, which will be a maintenance shutdown. These are the plant shutdowns, which will always be there.

But nothing in this mansion?

But in this financial year, there is no shutdown expected.

Okay, okay. And so the second question was more related to the cost for this quarter. Even though you have seen good run rates, the per-unit cost has not really come off materially. It's still relatively high, similar to fourth quarter. Is there a reason why that's happening? Or is there one-time cost that's associated still with the plant?

There is no such one-time cost. Basically, the gas cost and other costs are which are there. So I don't know which figure you are telling that way.

Okay. So it may be partly because of the gas cost itself. It's not come off, I suppose.

Yeah.

In specific energy consumption per ton of polymer production. It was actually improved over this quarter.

Okay, so you think it should normalize if... It will sustain at the level that it is now. Yeah. Okay. Thank you. Thank you very much. Next question is from the line of Manikanta from Access Capital Limited. Please go ahead.

Thank you for taking my question, sir. With respect to gas marketing division again, can you please explain us in those take-or-pay contracts which were not obliged, how do you go about claiming them? Can you explain that procedure?

See, if a plant is closed, any plant is closed, and the plant has submitted to take some volume but they are not taking it, then take-out pay is liable or the claim is raised only at the end of the calendar year. So we say January to December how much was contracted, how much you have taken, and then the claim is raised in the next quarter, first quarter of the next calendar year. There is no question of not raising the amount or not getting paid for it.

So the losses that we have incurred because they were sold on spot, can those also be claimed? There cannot be both the things, no? Hello? Okay, sir.

Understood. Mr. Kanta, do you have any follow-up questions?

Oh, that's it. Thank you.

Thank you. As there are no further questions, I will now hand the conference over to the management for closing comments.

Thank you, Nitin, for this phone call, and I think we have been able to tell the perspective of the management and details which are there. Thank you very much, and I thank once again to you and the entire team of KLF present here. Thank you very much.

Thank you very much. On behalf of Andy's Talk, Working Member, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.