GAIL (India) Limited

Good day and welcome to Q3 FY22 earnings conference call of Gale India Limited hosted by IIFL Securities Limited. As a reminder, all participants' line will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note, that this conference is being recorded. I now hand over the conference to Mr. Harshvardhan Dole from IIFL Securities Limited. Thank you and over to you, sir.

Thank you, Hemant. Greetings, everyone. On behalf of IIFL Securities, I welcome you all for the third quarter earnings call of GAIN. Before we start the call, I'd like to congratulate Gail for a stellar performance. And I, you know, would like to introduce the senior management team of Gail, represented by Mr. Rakesh Kumar Jain, who will be first giving his opening remarks, subsequent to which we can have the floor open for Q&A.

Over to you, sir.

Yeah, thank you, Harsha. Good afternoon to you from IFN and my dear friends from investors and analyst community. And I have with me my senior colleagues, Executive Director of Business Development, Executive Director of CSP, Executive Director of Petrochemicals, Executive Director of FANAS, Executive Director of international sourcing, so we have all colleagues available here to answer and other senior friends. So we are thankful to you for showing the keen interest in performance of GATE. The results for an up to third quarter have already been declared today and I'm sure you must have gone through the results and must be happy with the performance, GATE's performance in last quarter in particular and nine months in general. So, I just take a pleasure to state that for and up to Q3 2020, GAIL has achieved highest ever turnover, highest ever PVT and highest ever PAT. To give the financial highlights, GAIL achieved gross turnover of Rs. 25,688 crore in current quarter, that is the Q3, as against Rs. 21,477 crore in Q2. This is an increase of 20%, and this increase is primarily driven due to higher natural gas price, which is on average around $1.6 per mm BTU, higher LSC price, which is around 12,700 per metric ton, and higher petrochemical prices around 7,000 per metric ton. If you see on nine month basis, Gale achieved turnover of rupees 64,517 crores in financial year 2022 versus 41,057 crores during corresponding period in previous year, that is up by 57%. And if we talk of profit before tax, increased to Rs. 43,08 crores in Q3 financial year 2022 and against Rs. 3682 crores in Q2 financial year 2022. Increase of 17% primarily due to improved marketing spread, better prices of petrochemical and LFC, and improved operating efficiency in petrochemical and LFC. On 9-month basis, gain achieved profit before tax of Rs. 10,044 crore in FY 2022 as compared to Rs. 3774 crore during corresponding period in previous year. This is up by 166%. Profit after tax jumped to Rs. 3288 crore in Q3 financial year 2022 against 2863 crore in the Q2 of financial year 2022, an increase of 15%. On 9-month basis, Gail achieved profit after tax of Rs. 7681 crore in financial year 2022 versus 2983 crore during corresponding period in previous year as it's up by 158%. Coming to performance, if we talk of gas marketing, gas marketing stood at 96.56 MMSCMD in Q3 as compared to 97.72 MMSCMD in Q2 financial year 2022. Gas marketing profit increased from rupees 1073 crore to rupees 1745 crore, mainly due to increased gas marketing spread. And now if we talk of this gas marketing, you know, likely volume in future, if we talk about coming two to three years, next year we expect the volume to go up by five to six MMS CMD at some point of time. But if we compare the, if we consider the average, It will be around 4 mm CMD in coming next two to three years. Coming back to the natural gas transmission, it is stood at 114.28 mm CMD as against 114.32 mm CMD in Q2 financial year 2022. The capacity utilization remained at 55% in both Q2 and Q3. The gas transmission volume is expected. If we talk of futuristic things, the gas transmission volume is expected to increase by 5 to 6% per annum for coming couple of years. And this increase will primarily be driven by increase in supply to CGD and the upcoming fertilizer plants on GHBDPL. And just to give, these all customers will be coming on the GHBDPL, that means that the consumer will be paying the tariff upstream pipeline like HBJ, and thereafter GSE GDPR, therefore the weighted average fair revenue will also be higher as compared to this year. Volume of production stood at 234 TMT in Q3 financial year 2022 as against 216 TMT in Q2 financial year 2022. Increase of 8%. The plant is currently running smoothly and during the current quarter, plant operated at 114% as compared to 106% in Q2. And we are quite confident that plant will be able to achieve its 100% production capacity this year as well. Polymer cell stools at 217 TMT in Q3, financial year 2022, as against 221 TMT in Q2, financial year 2022. Decrease of 2%. We have witnessed very good petrochemical prices in the last quarter. And if you talk of average price in last quarter, it is around 104,000 per metric ton. We expect that price to remain stable, robust, even in near future. The electric sales stood at 275 PMT in Q3 financial year 2022, against 262 PMT in Q2 financial year 2022. Increase of 5%. The capacity utilization increased to 77% in Q3 as compared to 74% in Q3 financial year 2022. The price realization in Q3 was up by 26%. There is significant increase of price in Q3 26% as compared to Q2, which led to the increase of significant increase in market of LST. this despite increasing input cost if you remember that input cost increased from 1.79 dollar per hour we are talking of apm prices allocated uh to uh to lpg segment cost of input gas from lsc segment is primarily due by domestic gas price from april 2022 based on the current formula we expect the cost of input gas will go up but considering that the lsc price are very at a very good level and we when we see the future are likely at a very good level. Therefore, the pressure on the margin will not be to that great extent. LPG transmission was 1057 TMP in Q3 financial year 2022, and I guess 1054 TMP. It is almost flat as compared to Q2, 1057 versus 1054. And the capacity utilization is 110% in both Q2 and Q3. Coming back to the consolidated financial... Financial year 2021, the turnover in Q3 financial year 2022 is 26084 crore versus 21739 crore in Q2 financial year 2022 up by 20%. The profit before tax in Q3 financial year 2022 is Rs. 4820 crore versus 3728 crore in Q2 financial year 2022 up by 29%. The PAT in Q3 financial year 2022 is Rs. 3781 crore as compared to 2883 crore in Q2 financial year 2022 that is up by 31%. On 9-month basis, Gail assumed consolidated turnover PBT and PAT of Rs. 65,373 crore, 11,088 crore and 8,802 crore respectively. And up by 57%, the turnover up by 57%, the PBT up by 146%, and PET up by 141%. And coming back to the cargo detail, during the quarter, we have received 22 LNG . The 14 from Sabine Pass and 8 from BCP. Out of these, only six cargoes are sold in overseas market, and because of the increased demand, we brought remaining cargoes to India directly or through destination swaps. Gale CGD, the profit from Gale CGD business have increased. Now this is picking up. Now in last quarter it was 9 crore as compared to the Q2, 3 rupees 3 crore. Gale is having infrastructure of 92 CNG stations and one approximate 1,65,000 domestic PNG connections with community CapEx spent is rupees 1,000 crore. In the next two years, Gale targets to add over 100 new CNG stations and 2,50,000 new DPNG connections. the Q3 sales is approximate 0.16 mm S3MD and we expect the sales to grow by 20% in Q4 and is expected to double in the next two years. And with respect to Gale Gas, during the quarter three of financial year 2022, the Gale, gross revenue from operations to that rupees 2057 crore as against rupees 1478 crore in Q2, financial year 2022, an increase of 39% mainly driven by increase in volume and average gas price. PVT remained flat at Rs. 103 crore in Q3 versus 105 crore in Q2. The profit also remained almost flat 77 crore as against 78 crore in Q2. Gas sales have increased from 4.998 mmHcmd in Q2 to 6.13 mmHcmd in current quarter and this mainly has happened because of addition of one bulk consumer. and increase in CNG and DPNG demand. Gale gas along with its daily facilities and infrastructure of 7,50,000 DPNG collections and 268 CNG stations, Gale gas plans to incur a capex around 4,000 crores in next three years on expansion of network in existing cities, Sonipat, Meerut, Kota, Devas, Triptans, Kripozhiya, Bangalore, and for all the GH in 9th and 10th winning rounds. The sales volume is expected to grow by approximate 10% per annum over the next three years. Coming back to the CAPEX detail, GAIL has achieved over Rs. 5,000 crore of CAPEX up to December 21, mainly on account of pipeline, petrochemicals, CGD projects, operational CAPEX, equity contribution and ENP. We have planned to spend approximately Rs. 7,500 crore in the current financial year and similar amount in financial year 2022-23 and mainly on pipelines, the petrochemicals, CGD and equity. Just to share with you the project performance on the Pradhan Mantri Urja Ganga, the total commitment is over 15,530 crores and the actual capex till Q3 financial year 2022 is 12,815 crores. We have been receiving the capital grant from government regularly and till date the total capital grant received is 4,549 crores as against total grant of 5,176 crores. The GAIL along with JVE is executing various pipeline projects for approximately 7500 km entailing total cost of approximately 37,000 crores. GAIL is executing PP projects at Bata and Usart with total cost of 10,000 crores. The PMC contract and licensure selection has been done and the work on project is going on as per schedule. Just to share another recent development, the OTPC. Gale acquired equity stake of 26% in ONGC Tirupura Power Company, which owns and operates 726.6 megawatt gas-based combined cycle power plant at Baltana, Tirupura. This stake has been acquired from ILFS Group Company for a conservation of Rs. 319 crore. Thanks. All from my side. regarding the overview of performance and projects, the management of the companies available. We would be glad to clarify regarding any questions that you may have. Over to you, Mr. Harsha. Sure. Thank you. Moderator, can we open the floor for Q&A?

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. The first question comes from the line of Vishnu Kumar with Spark Capital. Please go ahead.

Good evening, sir, and congrats for a superb set of numbers you have delivered. My first question is on the transmission business, especially if you could just update us on the new fertilizer plants that are coming up and when do you expect all of the 4-5 plants that are already there to reach good volume utilization. Just hold on. So you're talking of the new fertilizer plant which are coming up. If you talk of HURL Gorakhpur, the pre-commissioning of this plant is in progress and they are currently going 0.1 to 0.2 mmHg of RLNG. and we expect commercial production to take place in April by 2022. If you talk of HURL Baroni, again the gas supply for pre-commissioning started in December 2021 and currently the plant is drawing 0.1 mm CMD and we expect commercial production to take place sometime in October to December 2022. Coming back to HURL Sindhri, Gas supply for pre-commissioning started in December 2021. Currently drawing almost approximate 0.1 mm SEMD of RLNG. Commercial production expected again in October to December 2022. And these all three plants, apart from drawing the transmission of around 2.2 mm SEMD, we have a contract for 1.87 mm SEMD for supply of gases through GLEAN. So is it fair to say this by October each plant will be drawing almost close to 1.87 by October to December quarter. All of them will be running closer to that capacity. Yeah, that's what we expect. Understood, sir. And second question is on the transmission side or rather the general SG&A costs for you has gone up to almost 1300 crores. Steadily it has been increasing about 100 odd crores on a quarterly basis. Is this the current run rate going forward or... If you could just help us understand when that number will continue. Can you come back again? What is that cost? The SG&A cost, which you report, the other expenses, sorry, the other expenses that you report on the P&L, that number. Just hold on. What is that? Give me a moment. As the other cost.

Other expenses. Other expenses. Transparency.

We'll come back to you, actually. We are not immediately ready with that. Got it, sir. And my final question is on the gas usage across various segments. If you could just tell us how much of APM gas is being used at each segment and just trying to understand because cost is going up. Each segment by gale or by country? No, no. For gale, internal consumption, let's say, we are using in the gas transmission. In LPG, how much you use the gas, the domestic gas, or let's say in PET-CAM, in case of use any domestic gas. All these individual segments, internal consumption. Yeah, yeah, yeah. So, there is allocation of APM gas to gale is for LPG, and the fuel consumption in compressors. Okay? And the allocation, can you tell me? location 2.5 in a just hold on 1.9 what is that yeah in LPG LPG and then and at a few members of compressors So, compressor is 1.33 and LPG, it is 1.99. 1.92. Okay. At a steady state basis, you are using only 1.92. No, no. Okay. One cost is pass-through cost. If we talk of compressor... the fuel consumption cost is passed through through tariff. So there is no increase which is going to impact yield. Okay, only on LPG this is 1.9. Yes, to the extent the APM price increases, certainly input cost as I also said in my initial remarks, the input cost is going to go up. But considering the LPG price currently and likely price increase or likely price scenario in future, it will impact, but it is not going to impact significantly. Got it. Sir, the transmission, we thought whatever tariff is getting reported, that will be the number, but you're saying that whatever PNGRV given number plus incremental cost will also be transferred. Is that the right understanding on the transmission? Incremental cost, that is, the tariff for natural gas pipeline are cost plus. So, any increase in cost is pass-through.

Understood, sir. Got it. Thank you. I'll come back in the queue. Sure.

Thank you. The next question comes from Amit Rastogi with UBS. Please go ahead.

Sir, thanks for giving me the opportunity and super congratulations for a strong set of numbers. Sir, I have two questions. One relating to your gas marketing. Could you give us an outlook for gas marketing U.S. cargoes? for the next financial year that how many are you planning to bring in India and how many are you going to sell internationally and what kind of arrangements we have because I think one clarity which investors need today is like the volatility in the gas trading business is quite huge. So if we can get a confidence that the volatility is reducing, that will be quite helpful for the investors. Just I want to understand how the volatility is getting addressed by bringing cargo to India? Sir, because internationally we understand that, you know, the prices are fluctuating versus your Henry Hub prices. And so we really don't know whether, you know, you have sold those cargoes at a profit or at a loss. That is one. Second is if you are selling more volumes in India, my understanding is that that brings quite a lot of stability. So only we will be subject to some basis risk because I think in India you sell the cargos at a oil link pricing and while the cost of the cargos is linked to the handling of pricing. Okay, I understand. So I will request the executive director of International LNG to just give you the details about the cargo which we will sell in international market for the next year. Hello, good afternoon. My name is Kabir Raj. For a moment, keep the volatility aspect aside. So far, the reason why we sold LNG cargo in the international market was that we didn't have commensurate demand in the domestic market. So it was more of a mitigation measure which we have been undertaking ever since our US started physically in early 2018. But now with time, the domestic tire, which we are done with the fertilizer sector, as well as in other sectors, they are slowly getting rectified. So time has come where we feel that the Elstril mitigation measure, which we undertook, is no more required. On the contrary, we have to preserve every volume, whether it is US or Gazprom or ExxonMobil, we have to preserve it to cater to the Indian market. This is the broad outlook. But at the same time, whatever volume which we have sold under the mitigation measure in the past, that we will continue to honor. To put a number or an assessment, there are hardly few now. And that commitment was made till March 23 only so far. Anything beyond March 23, I mean, I don't think there is any number, but till March 23, cargoes were sold under a term contract. If I have to broadly, you know, quantify these numbers, it will be around 15 to 20 cargoes. Okay. This we have to honor it. So, rest everything is being brought and will be brought to India only henceforth. Okay. Okay. So that is quite helpful. And, sir, when you sell incremental cargoes in India? Our action plan has nothing to do with the volatility because our ultimate market is India, and we are here to serve Indian market, and tie-up has been made, and pipeline investment has been made accordingly. So we have to fulfill those obligations. Yes, sir, really good to hear this. Could you tell us that now incrementally are you able to sign more cargoes, more volumes? in long term contracts from US portfolio in India and what is the pricing you are looking at? Is it Henry plus or is it still linked to oil? I will not be able to specify anything but yes there is a mood internally that we have to revisit our demand supply position because we feel that there is a scope for sourcing additional volume to meet the emerging requirement but we are not yet finalized. I know how much volume and from how and when we have to source it, I mean we have to finalize it because it all depends on how these, depends on the schedule of the balance demand factifying.

Yes, okay, okay.

Amit, if you have any opportunity which can give good slope, please let us know. Amit, what I would like to add to what Viraj has said. We will be able to bring most of the cargoes to India as demand is increasing because we have commitment in fertilizer plant. But then we are also, with respect to your answer whether we have plan to source. Let me give you one thing. When we are bringing the cargoes to India, we are creating a space for ourselves that there is the space which we were occupying in international market. We were marketing certain volumes. So apart from the, you know, sourcing of cargoes for Indian market, perhaps we can also fill that space of buying cargoes to maybe serve international market. So that is also being analyzed internally. Okay, okay. So I got it. That would be quite an interesting move. And so my second question relates to the CGD sector. So Gale is one of the largest players in city gas distribution. But now, of late, we are seeing that some gas allocation issues being raised for the priority sector. How do you think that these things will settle down? Because incrementally, we are seeing more and more volume growth. Like you're seeing yourself, Gale gas is growing pretty fast. Your own CGDs, including MGL, IGL, are growing pretty fast. But they are not getting commensurate to APM supplies, which they were supposed to get. And hence, you know, their cost has gone up. And there will be further cost pressures from April when the APM prices go up. So do you think that these businesses would still remain that much profitable as they were? And would government pays, you know, or gives the similar support which they were providing earlier? Amit, there is no, because this question is based on a hypothesis, what will happen in future. And now going by the hypothesis, you have assumed that there will be less allocation or there will be different pricing mechanism for that. Certainly, if input price increases, the margin will be under pressure. But you see, Because in the CGD sector, the prices are mostly based on alternate fuel price. So to the extent that they have margins, they will increase. But if that margin is lower than the input gas, certainly there will be pressure. But that is one part of it. Another part of it is that the CGD sector is a growing sector. So even if there is a little bit pressure on their margins, hypothetically, But then they are going and their business is going to increase. And the size, when increases, that will give another efficiency. In my view, that will compensate that. So that pressure may not be to the extent which is being envisaged if this happens. Okay. But do you think there will be like a continued support in terms of 100% APM gas allocation for the sector? That's the priority sector. It is a list of priority sector. There is no change. Okay, okay. Thanks, sir. Thank you for answering my questions. And congratulations once again for a super set of numbers.

Thank you so much. Thank you.

Thank you.

Thank you. The next question comes from Avdhut Sabnis with Incrate Capital. Please go ahead.

Yeah. So firstly, as you gave the status on the three fertilizer plants on the East Coast Pipeline,

could you give the status of the remaining two which is Matrix and Ramagundam where we also going to supply Actually I shared on the status which were in progress but if you talk of Ramagundam, Ramagundam commercial production happened in March 21 and plant is currently consuming 1.7 mm CMD of gas and plant is of course yet to be stabilized And full gas off stake is likely to happen sometime in March, April 2022. Because it started, so I did not share. And in respect of matrix fertilizer, Durgapur supply comments in August.

I'm sorry, if it is 1.7 right now on full off stake, how much would it increase to? How much? 2.2. Got it? Yeah, I'm sorry to interrupt. Very sorry.

Yeah, I know you. So gas supply for pre-commissioning, sorry, I am sorry, supply comments, I am talking of now metrics in August 2021, and currently drawing at full quantity. That is 1.5.

The reason this was related to my question was I said just to get the background for an overall question, which is that if I look at the gas sales volume, which is 96.56, in the current quarter, it is virtually flat compared to, let's say, what it was two years back, December 19 quarter, the last pre-approved quarter. If I look at your transmission volumes, 114, they compare to 110, and all the additional four, I would say, can be attributed to the reliance volumes. Okay. So, basically, your own customers broadly have not taken up more at all, okay, in the last two years. And what I wanted to ask is, A, if you can give us any color on that, two, especially on the energy cargo, as we have explained in the past, you all have to do forward scheduling in terms of planning for how much volumes get sold in the market as for the contracts for you to be able to schedule everything. From that perspective, this volume that you have sold, or rather I can put it this way, the long-term contracts that you have signed or what's supposed to come through in third quarter, has it been lower than what you thought it would be in March and April? And consequently, you had, if it was lower, then you had more volumes to offer in the spot market comparatively. Would that be right, Ashish?

So, we said that our volumes are flat as compared to the peak which we had in December 19 and now. Yes, that's correct. But then we have all the contracts which we had in past, which we shared, like all the five fertilizer plants. And I shared in the opening briefing that these all plants will come in stages, and therefore the plants will take gas on an average. If we talk of peak, the increase will be 6 mm CMD, but if on an average, there will be 3 to 4 mm CMD of gases, which is going to be increased, and consequently the transmission will also increase. So in March, April, we expect the marketing volume and transmission volume both will increase.

No, no, I'm so sorry. Maybe you didn't understand my question. I was asking the other way around. When you were planning in March 2021, saying, okay, how much sort of LNGs I will sell in India based on the long-term contracts, Okay, you would have factored in, you know, some volumes in the fertilizer units and from all your long-term customers. Have the actual volumes been lower in third quarter compared to what you had planned initially? And consequently, you know, you had more to offer in the spot market.

See, volumes from suppliers were as expected. There was no shortfall from international suppliers. Okay.

I'm asking from your customer's perspective. Sorry. From customer perspective, yes. Let me put it this way. In some of the earlier quarters, okay, you know, whenever you had explained, for example, that, you know, you had expected a new plant to start off in, let's say, one quarter or two quarters, okay, and that plant didn't really start. There were some issues and stuff like that. So whatever long-term volumes you had reserved for that particular plant, you were forced to sell in the spot market. Okay, that would happen, right? I mean, effectively, as I said, you plan well in advance all these things. So according to your earlier plans, you know, has the long-term volumes been lower? And accordingly, you have to sell more in the spot market. That will be more explicit in terms of what I'm saying. If the volumes have not really moved, and if you're still making higher profits on gas trading, then obviously margin has gone up, right? And then margin can go up only if, as I said, more is sold in the spot market at whatever prevailing higher prices. I'm trying to get a logic on that. Okay, I'll try to explain.

If you actually look at the physical numbers, there is an increase, okay? You are deriving inference based on, you know, delay in anchor plant coming up. But all along in the past, besides the long-term volume, there have been occasions where we have been sourcing LNG from spot market to meet the spot requirements, okay? Are you with me? Yeah, yeah, please. Please go ahead. Sorry. But unfortunately, because of the spike in prices in the last, in the previous quarter, we didn't have scope for buying spot volume, spot cargoes. Okay. But the molecules inflow expected under the long-term contract, that came in. Okay. So, it's a matter of how we reappropriated or bifurcated between long-term and the spot.

That's precisely my point. Effectively, let's assume Let's say in second quarter, argument sake, let's say you are selling 10 cargos in the Indian market to long-term customers and another 10 cargos to the spot market by procuring spot. Now, if you are substituting, then obviously the long-term has to go down, right, in terms of somebody who is not taking. That's why you can substitute. Otherwise, how can you substitute?

There is no such case here in this quarter that nobody was willing to take. All we can say is that we didn't have the opportunity to buy cargos from the spot market.

Okay. So would it be right to say that there is substantial still, I mean, against the general impression that all, most of the volumes sold in the Indian market or the LNG sold in the Indian market is all linked to oil pricing? At least in this third quarter, there would have been a reasonable amount of volumes sold at spot pricing? No, come again? I think the general impression is that whatever LNG volumes you are selling in the Indian market is all linked, all sold as oil pricing, basically rasgad pricing. Okay. Would it be right to say that? Not all substantially. Yeah. Okay. Would that have the proportion, I mean, is there more of spots, let's say, in this quarter, more volumes sold at spot in the current quarter relative to history? No. Okay. I'm sorry. Can you give us any color at all as to then how, effectively margins could have gone up so dramatically quarter on quarter?

Because the margin doesn't have to always necessarily go with the increase in volume, isn't it? We sold less volume in the spot market, but at a very high price. Okay. The volume sold in the spot market is less than the preceding quarter. But the realization has been much higher than what it was in the preceding quarter. Okay. Understood. Yeah. Okay.

Thank you.

Your question is for the same physical how you are having, you know, higher margin. So, this is the reasoning I can give.

So, in that sense, you realize the same kind of spot pricing in India as you would have realized selling in, let us say, Asian market. Would that be fair sort of assumption?

No, no, no.

Okay. Okay.

It's very difficult to, you know, give that analogy. It may not be true always. Sometimes it might be true. Because global market and Indian market need not be and may not.

No, no. What I'm trying to understand, sir, is as you rightly said, you sold certain spot volumes in the Indian market. When you sell spot volumes in the Indian market, it would have to be what? The benchmark would be the Asian spot price, right? That's what I meant. Yeah. So that's what I meant. So selling, you would get same realization in India as you would get in the Asian market.

By selling the LNG as liquid in the global market, you are saying? Yeah. Yeah, that is possible, but we didn't do that. We brought the volume into the Indian market.

That's what I'm trying to say, sir. Instead of bringing it to Indian market, even if you have sold in Asian market at Asian spot, the reaction will be the same, right? You have sold in the Indian market also at an Asian spot price.

It depends on when we undertake the sale. See, in the international market, we have to decide the sale much in advance. But in Indian market, it is, you know, just one week before also we can sell it. That's the difference. To sell a cargo in January, we would have decided by the month of, you know, November, okay? But to sell a volume in Indian spot market, we can decide even during January. That's the difference I'm trying to tell.

Okay. Understood, sir. Understood. Sorry, last very sort of completely book-taking question. What was the interest capitalized in the first nine months, let's say?

Interest capitalized. Interest capitalized.

No problem. Thank you so much.

We will give you offline. This is only data. We will have to take it out.

No problem. I will take it later.

Thank you so much.

Okay. Thank you. The next question comes from S. Ramesh with Nirmal Bank. Please go ahead.

Good evening and thank you very much. So just to go back to the discussion on LNG margins, can you give us a sense of any inventory gains or mark-to-market gains you would have booked in this quarter given that the spot price has gone up so much?

There is no inventory gain in this quarter. There is no concept of inventory gain.

What we're trying to get at is if you're saying that you're going to shift cargo from the international market and you're going to sell it to domestic market, if you assume that the domestic purchasing power is going to be possibly not more sensitive, is there a risk that your realizations will come down and the margins will come down? That's what I'm trying to arrive at.

Can you come back once again, please?

No, see, if you look at your margin, there's been a sharp increase in the unit margins for your gas marketing business. So, if you're saying that you're going to bring additional cargo from the international market to the Indian market, on an equivalent basis, you know, will you be able to add the same margins in the Indian market?

No, no. If we are required to bring in from international market to meet further demand, there cannot be same margin because that's the market.

What is the long-term sustainable margin per unit? Because the percentage margin doesn't make sense. So in terms of unit margin, what is the more sustainable margin one can assume with regards to marketing business? Let me try to give an answer.

In trading, I mean, it will be very difficult to assign or fix a percentage of steady margin because of the volatility in commodity prices, which all we have witnessed. The only thing which we can say favorably is that 90% of our volume have been tied up under a long-term contract through a price formula. And so is the case in the upstream side also. So to that extent, the revenue is likely to be stable because both the sides are insulated from market volatility. But the balanced 10% might decide the swing depending upon the market conditions.

Yeah, that is helpful. And the second thought is when you mentioned that you will get the benefit of HVJ and the GHBDPL pipeline for your increased gas volumes in the Ujjanga pipeline, what happens when the unified tariff is introduced? How would that change the, you know, gas transmission margins when you take it on a blended basis once the GHBDPL is in full operation?

Okay. First, I made that statement that when this four fertilizer plant comes fully on stream, weighted average revenue tariff realization will increase. And obviously for the current tariff mechanism, which is cascading tariff or pipeline to pipeline tariff for end consumer. And these four plans being adjusted on JHBDPL phase two, the tariff will increase. Coming back to your question, what will happen when unified tariff comes? In the current form, even though the unified tariff has not yet been implemented, there are a lot of issues with that. Even if it comes in current form, that regulation ensures revenue neutrality. It means whatever tariff, otherwise I am eligible pipeline to pipeline will be available even in the regulation which is notified, that is revenue neutrality concept. So my revenue are going to increase when these four plans come fully on the street.

So, that means we can expect your return on capital employed on the pipeline business to go up. So, is that a fair assumption?

So, for these pipelines, because some or more pipelines we are laying, if you include those, we may not increase to that extent, but for this pipeline, certainly going to go up.

Okay, that's useful. And then one final thought. There is a statement, the emphasis of matter under note 5.3 about 5.24 crores. Is there any liability that is likely in future which we have to write off? What does it mean actually?

Let me take couple of minutes to explain you. We have a company, our own 100% subsidiary that is GGUI in United States. We have, that company has taken a loan, 70 million and we have provided corporate guarantee. Now in terms of NDIS, if you provide corporate guarantee, you need to account for expected credit loss. And as on date, there is no trigger. that we need to provide that. We have taken the opinion from the Institute of Chartered Accounts and that also suggests the same. So what we said in our notes to account that we will examine it in next quarter whether we need to provide any provision or some provision. Though there is no trigger that company is paying its loan, they are being paid regularly, There is nothing which says we should provide. But anyway, NDIS and the guidance not suggest that you can keep a future as if something may happen. So not 524 crore, maybe based on some opinion comes to we may need to provide, but there is no trigger and no actual loss.

Okay. So one last question. The Konkan LNG in the consolidated numbers, Is the margin from that accounted in the gas marketing segment? Where is it accounted in the segment earnings, revenue and EBITDA?

Yes, hold on.

What are you saying?

Marketing, gas marketing segment. Okay, thank you very much.

Thank you. The next question comes from Sujit Loza with Birla Sun Life Insurance. Please go ahead.

Hi, sir. Thank you. Thanks for taking my question. So my basic question would be of the 97 MMSCMD which is deported in the trading business, can you give us a break up of domestic and long-term energy and sport? Sure. Just hold for a while. Up to Q3, yes. Domestic gas, if we talk, let me say the other way around. The total 97, we have RNG report is around 45.

Okay.

And then we have overseas sales around 10 million, 55. And rest is domestic. Okay. So almost 42 is domestic. Okay. And of this 45 and 1055, how much would be spot and how much would be long term? So, we actually almost sell 10% on broader basis in the spot market. 10% of 97. No, no, no. Because PM gas is not a spot. Domestic gas are not on the spot. No, no, no, I am just asking 10% number is. 5% or 5 to 6, 7% of total. So 6, 7 MMSEMD would be spot. 5, 5, not even less than 5. Less than 5. Less than 5. Okay. So my second question would be regarding the trading margins, why obviously it is a very dynamic in nature, the pricing, et cetera, but whatever contracts we do, we have a fair bit idea of another three months because they have to be contracted at least three months in advance for your overseas cargos. So what is your take on the gas trading margins? Are they expected to remain in this trajectory for next quarter as well? Or do you expect any major swings from here? I'm just asking the guidance. I'm not asking a number. I mean, what could the direction be? I'm also giving an answer. Who can predict the spot LNG spot price? So currently, the LNG spot price At that level, the numbers can be at that level. But nobody can predict what will happen to LNG price. Sir, no, but your overseas contract at least would be a couple of months in advance, right? Yeah, yeah. So, sitting in Feb, we would have idea of how it's going to be in, what it had been in Jan and how it's going to be in March, April. That's a bit of idea is there, right? So, are they expected to be stable at the 3Q levels or what is the guidance there? I mean, will there be a major... 3Q level was really very good and we will not be able to say that we will be able to maintain Q3 or we will be better at the Q3. It will be around a little less than the Q3. Okay, but in and around that 5-10% plus minus. cannot say 5-10%, but yeah, it will not be better or it will be challenged to meet that level. Right, right, right. Sir, my last question would be on transmission. I am sorry if I missed that number. What is the current transmission volumes? 100, current means in last quarter you are asking? No, no, last. 9 months. No, no, now you say for example exit rate of third quarter or if the JAN number if that could be possible for you to give. Yeah, yeah. So on in Q3 it was 114. Yeah. And the current exit rate is lesser than that it is 105, 106. And the primary reason is that few of the fertilizer plants are under shutdown for a period up to 15-20 days. And which has reduced our volume by 6 to 7 mmHg, maybe a bit more. So, if you, I have removed those volumes. So, it is currently around 100, 500. And when they come out of shutdown, so we are still operating at 100. It will be 110, 11, 12. Okay. So, it is lower than the third quarter number. So, yeah. Okay. Sir, this shutdowns are expected to be on till what time? Around 15th February. 20th February. I have been corrected 20th February. Okay. Thank you so much. If I have anything, I will come back and take it. Thank you.

Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, Request you to limit your questions to one per participant. Thank you. The next question comes from Gokul, an individual investor. Please go ahead.

Thank you for the opportunity. So could you give an update on the invite proposal that was sent to the ministry? Is there some movement regarding any going forward listing them?

So, INVIT proposal is still under deliberation. You know that two of the pipelines have been identified for INVIT that is DUPL and DBPL, Dhabol Bangalore and Dahejagwan Dhabol Panvel pipeline. So, we have appointed a transaction advisor to identify what can be the best mode of financing for us. Based on our analysis, we found that because we are almost a debt-free company, so we are able to source the debt around five, five and a half, and that is a better source for us in financing, and other moves are costlier as compared to this, and then we also carried out a study through transaction advisor. We suggest that Another mode can be the debt securitization model for instead of the in which we can also go for debt securitization model. That is almost or little costlier than the current rate of borrowing. We have examined and we are still under deliberations that what is the mode actually we should go to. We are discussing, and nothing concrete has yet been finalized. Thank you.

Thank you. The next question comes from Kabri Hazarika with MK Global. Please go ahead.

Yeah, good afternoon, sir. I have just one question. So currently, I work to break our long-term LNG volumes, longer-term LNG volumes, how would the mix be out of, say, 40, you said that around 55 is your LNG, which MSCMD spot. 50 MSCMD, how the breakup would look like? Qatar versus Gorgon versus Gazprom versus Western LNG?

Yes, yes. So we have around, you know, 4.8 mm TP of long-term contract with Qatar 4.5 plus 0.3 okay okay so then we have 5.8 mm TP from United States right and currently we are having 2.5 from you know Gazprom okay and a very minimal volume of 0.4 from Gorgon So this is how I have told in terms of MMTPA by you can just multiply by 3.6. So you will reach to MMSCMD. Yeah, sorry.

Go ahead. These are all operating at 100%, right?

I have told you 100% only because otherwise we have ramp up in Gorgon, the final ramp up is pending. So currently, this is what we are actually getting.

2.5 mm TPA is the current volume and ramp up would be to how much?

2.85 is the maximum.

2.85, okay. Yes. Okay, so thank you so much and all the best.

Yeah. Thank you. The next question comes from Kirtan Mehta with Bobcats. Please go ahead.

Thank you so much for the opportunity. Just one question to understand on the

Utilization, you said that the pipelines are .

Your voice is not clear. Your voice is not clear, right? So, are you able to hear me now? Yeah, a bit better.

Yeah, I was asked, I want to understand about the utilization, how it would develop over the next two to three years.

What I understand is currently pipeline is sort of operating at 55% utilization and there would be 5 to 6% sort of natural gas transmission volume increase per NM over next 2-3 years. But at the same point of time, I think we will have Urjaganga plus sort of the Mangalore-Kochi pipeline capacity ramping up as well. So, there would be capacity development as well. So, how do we see the average utilization improving over next 3 to 5 years? Okay. So, currently we Utilization is 55% and the phase 2 of the Urja Ganga is going to get commissioned. Okay? And all other, when we are saying 55%, we are saying 55% considering their nominal capacities. Okay? The bank of 206 is considering their nominal capacities. Okay? When I am taking nominal capacities like, you know, in case of HBJ, it is 107. In case of Dhabul, Bangalore, 16. DUPL, 16. So, considering their nominal capacities. Only in case of Ujjaganga, the tariff has been worked out considering the 7.4 mm CMD. But the capacity is 16. The only tariff has been, you know, determined considering the phase 1 only. So when the volume increases, like four fertilizer plant comes, the volume, total volume will increase and consequently the utilization percentage will increase. Okay.

Hello. Since we are not able to hear from the participants, we will just a moment here. Let me promote the next questioner. Thank you. The next question comes from Amit Sanghvi, an individual investor. Please go ahead.

Hello. Yeah, congratulations for this achievement for this Q3 in turnover. PBT and FAT. Sir, my question is already answered in the previous discussion, but I have one more request for you, sir. If you can provide some sort of presentation before this earning call starts, it would be better to understand the actual thing. So it is my request, sir.

Okay? So what kind of presentation you expect? Because the financial results are already available in public domain.

Sir, what is available in public domain is a quarterly result. What I would say that we have discussion over some quantitative details, which is not a part of this public domain information. So I just request that if you can provide some sort of presentation for the particular quarterly production and financials. It will be later.

We'll consider. We'll review that. Thanks a lot. Thanks. Okay, from my side. Thank you.

Thank you. The next question comes from Pinakin with J.P. Morgan. Please go ahead.

Thank you very much for the opportunity, sir. I'm just going to go back to the trading business. Very early in the call, the management specified that roughly 15 cargoes have been sold forward till March 23 overseas. Now, just trying to understand that on those 15 cargoes, has the price already been fixed on a basis or is it linked to some kind of spot index or crude prices? So what I'm trying to understand is on those 15 cargoes, depending on how crude and LNG prices move, Will there be a change in profits and profitability?

It is not exactly 15. It should be around 15 to 20. I mean, you can say around 20 numbers, okay? These were sold maybe four or five years before. It was indexed to HH.

And some of the volume, I mean, all the volumes are indexed to HH only. So to that extent, sir, if spot LNG prices were to go to Asian spot JKM index were to go to $50 or $10, there would not be any profit flow through on those cargoes. I don't think one would sell volume like this. Understood. And, sir, the cargoes that are brought to India from the U.S., when you sell them to India, Are they on a spot mechanism linked to JKM or are they crude contract links? So what I'm trying to understand is depending on how spot JKM moves, will those US cargoes that are being sold to India see a change in their profits? I don't think industry operates that way. Okay. So to that extent, sir, then the December quarter profits were essentially some spot cargoes which were sold at very high prices, right? It is not something which can, you know, repeat itself. Okay. Sorry, can you repeat? So December quarter marketing EBITDA, gas trading EBITDA was roughly 1800 crores. Now effectively, if most of the US cargoes either being sold in India or sold overseas are linked to some kind of indexes, then it means that the December quarter surge in trading EBITDA was essentially because of a few floating cargoes which would have been sold at very high spot prices, right? Yeah, one of the reasons could be. So that profit should not be repeated again. Or do you see that if spot LNG prices remain high, then there are enough floating cargoes for Gale to benefit from them in the March quarter as well? Floating cargo means, can you define? So floating cargoes essentially, sir, where you have not linked, where you have not forward sold to any Henry Hub linked index or to a Brent linked index. And the realization would be JKM, JKM spot cargo, spot index. Okay.

Just to clarify, we don't have any floating cargo for this quarter, current quarter. Understood. Thank you very much, sir. Thank you.

Thank you. The last question comes from the line of Mayank Maheshwari with Morgan Stanley. Please go ahead.

Hello, sir. Just one question in terms of... The medium-term outlook, I suppose, that I'm kind of looking for is, as you said, I think a lot of your cargoes are kind of getting tied up in the domestic market beyond 2023. So are you kind of now thinking to kind of start looking around eventually for more volumes, considering how good gas demand has been in the country? Is there something that the port is thinking about over more long-term solutions to source gas? Obviously, markets are high now.

This question has already been answered, and I will only repeat it. Because we, being a gas company, continuously look for the sourcing if there is a demand in our country, and we are able to meet that. So, regularly, we assess the demand and supply situation. And if such a situation arises, certainly we look for that, and the deliberations we have started, and we... and looking for those opportunities. And I also said that until our volume risk was mitigated, we were also marketing the LNG in international market. Once we start bringing those cargoes to domestic market, that space is also available for us. That means we can source and market in the international market and based on the demand, bring to India for domestic market. So that's a continuous process. Being a marketing company, we continue to assess that demand and supply situation in order to meet both these demands.

Got it, sir. Good to hear the deliberations have started. Thank you for that.

Thank you. Thank you. In the interest of time, that was the last question. I now hand the conference over to Mr. Harshvardhan Dole for closing comments. Please go ahead, sir.

Thank you.

On behalf of ISL Security, I'd sincerely like to thank Gale Management for giving us an opportunity to host the call. I also thank all the participants for joining in. In case there are any questions which are unanswered, you can drop a line to me or reach out to the Gale IR directly. I'd like to request management to make any final remarks, if at all.

No, thank you, Asha. Now, we have tried to answer most of the questions, but one or two questions we could not answer to our participants. Those can be referred back to us specifically, and in general, if somebody has got any query, we can certainly address our IR team, and we will be responding. Thank you so much. Thank you.

Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect.