GAIL (India) Ltd
NSE:GAIL
Earnings Call Analysis
Q3-2024 Analysis
GAIL (India) Ltd
In the third quarter of fiscal year 2024, GAIL witnessed an impressive 8% rise in gross turnover, reaching INR 34,168 crores compared to the previous quarter's INR 31,728 crores. This growth was primarily driven by increased natural gas prices and improved realization in the liquid hydrocarbon segment. The profit before tax saw an 18% increase, settling at INR 3,694 crores, and profit after tax followed suit, rising by 18% to INR 2,843 crores. On a 9-month period basis, there was a notable 45% increase in profit before tax, which amounted to INR 9,496 crores, and a 49% surge in profit after tax, reaching INR 7,431 crores.
In the analyzed quarter, GAIL added 8 new CNG stations and about 16,000 DPNG connections, with an ambitious plan to add over 100 new CNG stations and around 2 lakh new DPNG connections within the next two years. Turnover for this segment stood at INR 3,145 crores, marking a 15% increase with a resultant profit after taxes of INR 113 crores, a significant leap from the previous quarter's INR 42 crores.
GAIL is on track with several pipeline projects, including the Mumbai-Nagpur-Jharsuguda pipeline expected to complete by October 2024 and the Dhamra Haldia line anticipated by June 2024. The petrochemicals division, specifically GAIL Mangalore Petrochemicals Limited with a capacity of 1250 KTPA, is projected to be operational by March 2025. These infrastructure advancements reflect GAIL's long-term strategy to enhance its supply and distribution capabilities.
With a capital expenditure of INR 17,030 crores concentrated mainly on pipelines, petrochemicals, and city gas distribution projects, GAIL seems poised for continued growth. The company has demonstrated strong performance in the gas marketing business, already exceeding initial marketing margin expectations, predicting this margin to surpass INR 5,500 crores by the end of the fiscal year. Looking ahead, GAIL anticipates this marketing margin to be around INR 4,000 crores for FY 2024-25 and around INR 4,500 crores for FY 2025-26.
GAIL's gas marketing volumes are on an upward trajectory with expected growth, leveraging flexible gas options. The company anticipates a minimum increase in their transmission volume by 12 to 15 MMSCMD year-on-year. These projections align with India's rising gas demand and GAIL's strategic initiatives to capture market growth.
Despite a temporary supply disruption from one pipeline, GAIL is optimistic about recovering the affected 3 MMSCMD volume. The growth in city gas distribution is projected to contribute significantly to GAIL's volumes, alongside other sources ensuring a 10 to 12 MMSCMD increase. The company is confident in its petrochemical business, expecting profitability in the next financial year with optimized input gas costs and stable selling prices.
GAIL's management highlighted operational efficiencies and cost optimization efforts, particularly in the PATA Petrochemicals segment, which now operates above capacity and is expected to close the current financial year at a breakeven level, progressing to reasonable profitability next fiscal year. The liquid hydrocarbon production is anticipated to be slightly higher compared to previous years, benefitting from better price realization.
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Ladies and gentlemen, good day, and welcome to Q3 FY '24 Earnings Conference GAIL (India) Limited, hosted by ICICI Securities. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Probal Sen from ICICI Securities. Thank you, and over to sir.
Thank you, Aditya. Thanks, everyone, for taking the time out on back-to-back calls to attend the GAIL's post-Q3 FY '24 results call.
We have with us from the management, Sri Rakesh Kumar Jain, the CFO of the company, along with other members of the senior management of GAIL. So without further ado, I'll hand over to the management for their opening remarks, and then we can get into the Q&A. Sir, over to you.
Thank you, Probal, and a very good afternoon to all of you. I have with me my colleagues from various departments who are heading critical department like sourcing, marketing and colleagues from finance.
Once again, good afternoon and warm welcome to GAIL's Earnings Call for Q3 Financial Year '24. At the outset, I thank you all for attending this earnings call. GAIL's result for quarter ended December 31, 2023, we declared today. I will touch briefly on the major highlights for quarter, and then we can open the question-and-answer session. GAIL's gross turnover increased by 8% to INR 34,168 crores in Q3 financial year '24 as against INR 31,728 crores in Q2 financial year report. The major reasons for the increase is the robust physical performance by all the major business segments of GAIL. This quarter witnessed increase in natural gas prices and better realization in liquid hydrocarbon segment. Profit before tax during the quarter increased to INR 3,694 crores as against INR 3,130 crores in Q2 financial year '24. Again, this is up 18%. This is mainly due to increase in LFC price realization, higher petrochemical sales, improved gas marketing margins and reduction in input VAT cost for petrochemical segment. Further, during this quarter, we received higher dividends as compared to quarter 2. We received INR 403 crores as against INR 270 crores in quarter 2 financial year '24. Profit after tax during the quarter increased to INR 2,843 crores as against INR 2,405 crores in Q2 of financial year '24, that is up by, again, 18%, and the reasons are same as I enumerated for profit before tax. If we talk of 9-month basis, GAIL clocked the turnover of INR 98,034 crores as against INR 111,290 crores in corresponding period of the last year and there is a decrease of 12%. And this decrease is mainly due to decrease in gas prices as compared to last -- 9 months of last financial year. However, this is partly offset by decrease in transmission tariffs, volumes in natural gas marketing, and natural gas transmission and petrochemicals. There is increase in profit before tax by 45% to INR 8,713 crores as against INR 5,993 crores and PAT by 42% to INR 6,660 crores at INR 4,698 crores. Physical performance if I were to share with you. Total gas marketing volume was 98.14 MMSCMD in Q3 as against INR 96.96 crores in MMSCMD in Q2 financial year '24. This increase is mainly due to increase in volume, overseas volume. Natural gas transmission volume was 121.54 MMSCMD in Q3 as against 120.31 MMSCMD in Q2. The average capacity utilization was 58%, approximately. The increase in transmission volume is attributed to increase in shipper's volume by approximate 1.26 MMSCMD.
Volume of production increased by 45 TMT to 205 TMT in Q3 financial year '24 as against 160 TMT in Q2. Capacity utilization in last quarter, that is Q3, was 101%. Liquid hydrocarbon production was 249 TMT as against 238 TMT in previous quarter. The capacity utilization was 69%. LTE transmission was almost flat, that is 1,095 TMT as against 1,114 TMT in previous quarter and capacity utilization was 95%. The consolidated financials for Q3 as against Q2, the consolidated turnover in the current quarter stood at INR 34,678 crores versus INR 32,952 crores, up by 5%. PBT in the current quarter is INR 4,075 crores versus INR 3,138 crores in Q2, up by 30%. Profit after tax is INR 3,195 crores versus INR 2,444 crores in Q2, that is up by 31%. On 9-month basis, consolidated financials, the consolidated turnover for 9 months in financial year '24 stood at INR 103,085 crores versus INR 112,445 crores in the corresponding period in previous year. The profit before tax for the 9 months in financial year '24, up by 45% to INR 9,496 crores as against INR 6,567 crores in corresponding period of previous year. Profit after tax up by 49% to INR 7,431 crores for 9 months in financial year '24 versus INR 4,982 crores in corresponding period for the previous year. Now I'll share the performance of GAIL's CGD. GAIL's having infrastructure of 165 CNG stations and 290,000-plus DPNG collection in the 6 GA allotted to GAIL. During the current quarter, 8 new CNG stations and approximately 16,000 DPNG connections were added. The physical volume is 0.3 MMSCMD during the quarter. In the next 2 years, GAIL targets to add over 100 new CNG stations and approximately 2 lakh new DPNG connections.
I will share now the performance of GAIL Gas. GAIL, in the current quarter, Q3 financial year to '23, '24. Turnover stood at INR 3,145 crores as against INR 2,745 crores in Q2 financial year '24. There is increase of 15%, mainly on account of increase in bulk trading quantity by 12%, CNG quantity by 11%. Profit before taxes stood at INR 153 crores as against INR 57 crore in Q2 financial year '24. There is an increase of 168%. Profit after taxes stood at INR 113 crores as against INR 42 crores in Q2 financial year '24, increased by 169% for regions as explained. This physical volume increased to 7.18 MMSCMD in Q3 financial year '24, increase of 10% mainly on account of increase in bulk trading quantity by 12% and CNG quantity by 11%. During current quarter, GAIL Gas, along with JV subsidiaries, has added 17,731 new DPNG connections and 29 CNG stations and having infrastructure of 9,06000 DPNG connections, as a group company. If I were to talk about GAIL Gas, GAIL Gas has almost 5 lakh of DPNG connections. Bengal Gas Company Limited at 31/12/23, BGCL is having 13 CNG stations, 237-kilometer pipeline and 8,000 numbers of domestic CNG connection infrastructure is available. During the current quarter, one -- CNG stations at 22-kilometer pipeline area. Project performance, Mumbai-Nagpur-Jharsuguda pipeline activities are moving in full swing and pipeline is anticipated to be completed by October '24. Jagdishpur-Haldia-Bokaro-Dhamra pipeline out of 3,289 kilometer 2,951 kilometer pipeline have been commissioned and remaining part is expected to be completed progressively by June '24. Srikakulam-Angul main pipeline, that is of 420 kilometers, work is in the progress and likely to be completed by June '24. These lines are anticipated to be completed by September '24. Gurdaspur-Jammu Natural Gas Pipeline, this pipeline having a length of 106 kilometers, and is likely to be completed by July '26. Dhamra Haldia pipeline length 253 kilometer, the work is under progress and expected to be completed by June '24. PDSPP at Usar as you know, capacity of this plant is 500 KTPA, is expected to be completed by April '25. PDSPP PATA capacitated 6,000 KTPA, expected to be completed by July '24. IPA at Usar, 50 KTPA, expected to be completed by December '25. GAIL Mangalore Petrochemicals Limited, capacity 1250 KTPA, completion date by March '25.
CapEx for Q3 financial year '24 is INR 17,030 crores, mainly on pipelines, petrochemicals, CGD projects, operational CapEx and others. Now I will like to share some segmental outlook for short-to-medium term. So far in the financial year, our gas marketing business has exhibited robust performance. In earlier conference call, we have -- we had given a guidance that no matter what GAIL will be able to earn at least INR 3,500 crores as a marketing margin from gas marketing segment during financial year '23, '24.
In 9 months period ending December 31, '23, due to better arbitrage, various optimization measures like time swaps, destination swaps and shipping optimization, we have already earned GAAP marketing margin of INR 4,300 crores, which has surpassed our earlier guidance. With these revised numbers, our GAAP marketing margin is expected to exceed INR 5,500 crore mark by the end of this financial year. In the similar way, we believe that the GAAP marketing spread for '24, '25 will be around INR 4,000 crores and for financial year '25, '26, will be around INR 4,500 crores, and that is the minimum we expect to earn. Gas transmission volume for financial year '23, 24, it is expected to be 120 MMSCMD on an average basis. I'm talking of yearly average. And we also expect when we close this financial year, we'll be having exit rate of at least of 123, 124, in this regard, I would also like to inform that to my investor community that in Q3 financial year '24, average transmission volume stood at INR 121.5 crores MMSCMD, that is up for 120.3 MMSCMD in Q2 financial year '24. In next quarter, we expect to transmit slightly higher volume, so as to reach an average of 120 MMSCMD for full financial year. Further, during next 2 to 3 years, there will be increase in transmission volume by 12 to 15 MMSCMD on a year-on-year basis. Volume and production stood at 205 TMT against 160 TMT in last quarter. In this quarter, we were able to post a PBT of INR 62 crores as against loss of INR 160 crores. As we have been mentioning to our analyst community that we expect when we end this financial year, we'll be around at breakeven level on yearly basis for petrochemical at PATA. This has happened due to optimization of costs, input gas costs, improved operational efficiency because of we are earn the PATA plant at more than 100% capacity. Further, in Q4 of financial year, '23, '24, we plan to optimize further our gas sourcing and likely to -- as I said, likely to close at breakeven level.
For next financial year, not only normalized petrochemical operations, but we expect to earn a reasonable profit from PATA Petrochemicals. Liquid hydrocarbon production stood at 730 TMT during 9 months of financial year '24. And during Q3, we were able to post a PBT of INR 257 crores as against loss of INR 17 crores in Q2. Due to better price realization in financial year '24, production level is estimated to be slightly higher as compared to previous years. Also to protect our margins in this segment, GAIL is effectively involved in taking hedging for LPG products. I think that's all from my side regarding the overview of performance of -- performance and project status. Now I invite you to have any clarification questions on the results for Q3 and 9 months ending December 31, '23. Over to you Probal.
Thank you, sir. Aditya, can we open up the queue for question and answers?
[Operator Instructions]
Our first question is from the line of Puneet Gulati from HSBC.
Congratulation on great numbers. My first question is on your guidance for FY '25, why are you guiding for lower marketing margins for FY '25 versus '24? Or are you just seeing...
Puneet, we have shared the minimum marketing margin, which we are likely to -- we also -- for this year, if I were to share, we said that we are at least INR 3,500 crores. So we are saying this will be minimum, which we expect to earn. And then based on the market situations, the arbitrage available, the optimization we are able to do, we may better off than this, but for guidance purpose, we are considering a number of INR 4,000 crores.
Understood. So it's fair to assume that there is 100% probability of INR 4,000 crores marketing margin?
That's what we expect.
Secondly, you can also talk a bit about what's driving the improvement on the petrochemical side, if it was a decent improvement. What is the optimization that you're doing that you're comfortable...
Actually, first, when we were running the plant before this quarter, it was suboptimal production capacity we were running. So in last quarter, we were able to operate the plant at 101%. Once you operate the plant at full capacity or more than the full capacity, a lot of positive things happen. And one of the positive things is that specific energy consumption in terms of per MMBtu convention for one metric ton has gone down significantly.
I think the fixed cost allocation is to a higher quantity. Third, we through our portfolio, because in our portfolio, we have options to have -- make available the gases, which suits the PATA Petrochemical production and the viability, we are able to do that. So all these factors have enabled the profitability in Q3 for PATA Petrochemicals.
And lastly, if I may, if you can also talk about the opportunities on increasing your volumes for marketing business? Are you sourcing new gas, what kind of gas contracts and gas collections are you seeing in there. What is the new volume tier that you expect to do over next year?
So our Chairman has already said on various occasions that we intent to source to 7 to 8 MMTPA additional gas for our portfolio and maybe 1 to 2 MMTPA on a yearly basis. In this regard, already there was an announcement that we have signed a contract for 1 MMTPA which is going to be available to us from calendar year '26. We are also in advanced stage of discussions with various suppliers and very soon, we may be able to inform you when we conclude these deals. So we are on the job to source the gas as to have a broader portfolio and do more market.
[Operator Instructions]
Our next question is from the line of Sabri Hazarika from Emkay Global.
Congratulations on good set of numbers. So I have 2 questions. The first one is relating to marketing. So from what we understand, generally, the marketing margin in APM gas is something like INR 200 per MMSCMD, which is like around $0.1 per MMBtu. And in LNG, it generally ranges somewhere around like $0.20 per MMBtu. So if we do a rough calculation, we generally end up at around INR 2,000, INR 2,500 crores kind of marketing EBITDA for the year. So I'm just wondering that when you were like citing INR 4,000 crores, so does it mean -- and is this arbitrage opportunity? They are like more recurring on in nature? Or do you think -- has there been any like structural increase in gas marketing margin or anything of that sort has happened?
Actually, you are arriving at these numbers based on the sales price, which -- certain fixed or some fixed kind of marketing margin. That is one part of it. But our portfolio does not include the APM gas and LNG, which we market at fixed margin. Our portfolio also includes -- significant portfolio also includes wherein we have option and opportunity where we are able to market the gas on a midterm to long-term basis on a higher marketing margins than what you have estimated, that's one thing. But apart from the marketing side, it is also sourcing side.
I also narrated during my brief that we are able to do a lot of things, which is -- through which we are able to reduce our cost of gas sold, like time swaps, destination swaps, ship-to-ship transfers, a lot of things which we do. And all these things -- and then taking this position in financial markets, the paper positions because we have a lot of portfolio available to us. So all these things enables us to have at least a number of INR 400 crores, which we have seen in the last 2, 3 years because every year when we are giving guidance, we are working out these numbers, right, before this year we said INR 3,000 crores, we surpassed in the worst kind of situation. This year, we said INR 3,500 crores. We, again, went back to our calculation, again we achieved it and then we have done it.
So similarly, for the next years, we see that the gas marketing volumes are growing, growth is there in the business, and also we are able to take the benefit of a lot of options which we are exercising because we have a lot of flexible gas, at least from United States.
And marketing volumes will also grow around 5%, 6% or it will be even more than that?
We expect marketing volume to grow at least by 5% to 6%.
Okay. And second question is relating to your transmission business. So the kg within tariff order are -- sometime back, and they have like increase gas cost, gas pricing assumption in the quarter, I think that's taken some long-term average of HPHT and also. This is the final, or do you think there could be further upside to the gas cost assumption?
I understand you are talking of [ KG/BT tariff ]. Is that right?
Yes, yes. That's why they've taken that assumption, but does it mean that even for unified tariff and integrated tariff that assumption may be taken or...
I think if you go back to the tariff order, there is no implication of any gas assumption in [ KG/BT ] tariff because there is a compression. There is no fuel consumption in [ KG/BT ] tariff. So that has no link with the tariff of HPHT which is part of the unified tariff where compression fuel is being used. That is a separate issue.
I am talking about gas price. I'm talking about the gas price.
Gas price, how it will impact the tariff, unless it is used as a compression fuel or transmission loss. Only these will happen.
Our next question is from the line of Maulik Patel from Equirus.
Sir, few questions. Now you do not have any of these APM gas for your gas compression business -- in the gas transmission business. So is this a normalized cost on transmission segment?
If I understood you are telling there is no gas allocation. And at what cost we are booking? Is that right?
Yes.
So since there is no gas allocation. We are sourcing the gas for our compression fuels. We are trying to source the gas from domestic sources and to the extent it is available or else we use the RLNG for our compression fuels, which is at prevalent market price.
You are using around 1.7 MMSCMD of gas for the compression business, right, approximately?
Right, right.
Now from this quarter onwards, it will be on the market prices, whether it's in HPHT or it will be export LNG.
Right. Export LNG or the gas available out of our portfolio.
Okay. Okay. And sir, when do you expect that order to come now? I mean, because earlier the assumption was that within a year PNGRB will revisit the assumptions what they made into this integrated tariff pipeline at $3.5. When do you expect that to have it again?
Actually, we are falling with PNGRB. And we have said them to take a business -- but we understand that the ratio of member legal there. Probably that is delaying that process.
Got it. Sir, last question. This is on the pet-chem side. Now we were turned into that, again, profitability. And this quarter LNG prices are again lower than the previous quarter. Is this fair to assume that your profitability will substantially improve in this quarter? And sir, any update on that acquisitions that we have done a couple of quarters back, that INR 2,000 crores, which we are supposed to spend. When do you plan to start operation in that?
Yes. So it is fair to assume that profitability for petrochemical project or plant PATA, will certainly improve as compared to Q3, definitely. And we expected it to be the level of PBT or rather we will be at breakeven level for PATA Petrochemical on yearly basis. Second question is with respect to the plant, which we have recently acquired. That is JBF Petrochemicals, we expect that plant to be commissioned by March '25.
Okay. And sir, we have this take around INR 2,000 crores in that, right?
We have acquired through NCLT process at approximately INR 2,100 crores. And then we are expected to incur around INR 2,000 crores to bring it to the commissioning level.
So sir, our [ PDS ] plant will also commission around that time only next year?
Yes. Yes. [ PDS ] will be commissioned mechanically by April '25.
So commercial will be take another 6 more months to complete?
Maybe 3 months.
Our next question is from the line of Vikash Jain from CLSA.
So a couple of questions. Firstly, on your volumes. Now this 121 volume that we are seeing, could you just remind us how much of this is outside the main pipeline, which is the unified pipeline? How much of this is outside that like the Kochi, Mangalore...
Maybe 10% of the volume is out of the unified networks. [ KPMBPL ] and kg basis are large volume, rest are very, very minimal. So KG basis maybe around [ 4% to 5% ] again this [ 4% to 5% -- ] so 9 million to 10 million volume, 8, 9. And then another region which are small network, which are not part of this unified tariff.
Okay. No, because what I'm asking is that is the kind of growth that we are talking about, if we are at about 110 or so, we get another 8, 9 MMSCMD of growth, then we would be already at 75% utilization, right, for the main networks. In that case, incremental volume increase could also lead to tariff adjustments? Or how does that work?
Vikash, you know the tariff regulation. Actually, we don't expect -- that incremental volume will lead to reduction in our revenues before regulations are such that any under recovery of past years, we have the right to recover from any over transmission in the coming years.
So there will be years when we have under recovery. In past we have years. So those under recovery will be first offsetting from oversupplies, if -- whenever it happens. So there is no question, even if we reach 75% level that we need to pass on.
Okay. Okay. Yes, that's a useful clarification. And the other thing was this OpEx that we see for this, for gas transmission segment, that's gone up significantly. So there are -- this is because all of this quarter, the complete allocation is gone or there was part of it that was around...
Yes. This quarter Vikash, the allocation is totally gone now in 2 stages. One, I think in August -- first October and second is December 16. So with effect from December 16, we don't have any allocation of APM gas for use in compression fuels.
So that is December 16. So next quarter, if anything, OpEx will be even higher? Because why I'm asking that, sir, is we are right now -- I mean, last year, there was this thing about the OpEx being one-off because there was a higher -- much higher price spot LNG, $40 spot LNG that you had to use and all of that. But even now that I see most likely next quarter, OpEx from Gas Transmission will be at a much higher level because you said that December 16 is when it went, full effect will be in January to March. Is that...
[Foreign Language].
[Foreign Language]
Because the quantity reduces on 0.2. Yes, it little bit higher level, not at much higher level.
So 0.2 of a base of 1.7, right?
Right.
So 1.5 say 1.7% [Foreign Language] so about 10%, 15% kind of...
[Foreign Language]
Okay. And any reason why LPG realizations look a little low? Any reason you can think of that you can -- because this appears to be a little bit of a discount to what I thought was the marketplace?
Can you come back again, Vikash?
LPG segment realization, any reason why they appear to be a bit low or you don't have any specific reason you can think of?
No, we don't have because it's all market-driven import parity price, and we don't have any control over it. So there's no specific reason, interest prices are in that range.
Okay. And finally, where do you see -- so when you say this 12 MMSCMD growth, that, in your opinion, is more you are talking because I think you said over the next 3 years, average of 10, 12 MMSCMD growth is what you see. So that's more like we should be thinking of more from a perspective of CAGR rather than specifically next year 10, 12 MMSCMD coming. Is that how you think about it?
Yes, let me tell you. Currently, there is a disruption in supply from one of our pipeline Dadri to Panipat supply, right? So we expect the 3 MMSCMD volume at least to come back. Increase in offtake every year, there is a growth in CGD by 12%, 13%. Even if you take roughly 70% of our market share, 3 MMSCMD will come from there. iOCL Varoli, we expect to come 0.5 and the general -- so we have the biggest data from where the 10 to 12 will be available. I have given only 2, 3 to you.
Why I say that, sir, because 10% increase, when you are increasing 10%, Indian gas demand is also rising effectively close to that. That is something that we have not seen for many, many years and there have been...
You are right. We are not seeing rather for many, many years -- in our country remained at -- stagnated. But this year, if you have seen, there is good amount of growth. In fact...
Which is of a low base, a lot of those price...
I can agree with you. I agree with you. But...
After the very high prices of last year due to the spot LNG prices being...
Right, right, but we expect that -- is possible.
Our next question is from the line of Vivekanand Subbaraman from AMBIT Private Limited.
I have 2 questions. The first one is on the pet-chem business. Sir, are you able to share the price of gas, the input gas that you sourced in 3Q? And what is the assumption that you've made for FY '25 as far as the -- on full-year profitability is concerned. Second thing, could you help us understand the status of the of the volumes that were under dispute, the shortfall that you had from the Gazprom trading entity? And is there any compensation you received there and resolution plans there?
We expect that, firstly, it is not the input gas, which -- based on which we can assume that PATA will be profitable on a yearly basis. It's the function of both the sales price and also the input gas cost. So if you are to ask me based on current level of pricing, petrochemical-wise $8 to $9 is a very good price input gas cost for PATA Petrochemical and we are able to source and supply at that level to a PATA Petrochemical. Second assumption is that the pricing level for petrochemical were lower even in this quarter as compared to Q2. Even if you maintain the price level of Q2, which were higher by INR 8,000 per metric ton will be at a good profitable level for -- in Q4 and also the next financial year.
Okay. So just to clarify, at $8 per...
$8 to $9 because it is always varying.
At current spread $8 to $9 will be the breakeven point in FY '25...
Breakeven level is higher than 9%. We are able to export and supply at $8 to $9. That's what I told.
Okay. Sorry, I'm able to understand. You said that your pet-chem business will breakeven in FY '25. My question was what -- gas price that you're assuming for this breakeven?
I never said that our financial year '25, will be breakeven. I said we will be in profit in next financial year, first thing. I said that in order to have the profitability, which is function of 2 things. One is the selling price and secondly, input cash costs. We are able to source and supply to PATA Petrochemicals around $8 to $9, sometimes $9, $9.5, sometimes $8.5.
And what I also said that during this quarter, our petrochemical prices were lower even if you compare by Q2 by INR 8,000 per metric ton. So even if we maintain those prices of Q2 level, we expect those prices to be available. And if we are able to supply at $8 to $9, we will be not breakeven, we will be in a reasonable profitability for PATA Petrochemical.
Understood. Very clear. My other question is answered.
What is that?
That's on the gas -- what's the legal resolution there till now? And also on the marketing side...
You're asking? Compensation? Sorry, I missed that. So that is the case is -- so I cannot say anything on that.
Okay. And is there any assumption that you have made with respect to any resolution in the guidance given for FY '25 on the marketing side?
Any?
Any resolution? And what about the cargo from Gazprom, are you getting it now?
Anything which have continued, we are not considered.
Okay. And lastly, are you getting cargoes now from Gazprom, the new entity?
Yes.
Okay. But no shortfall is being met, right? The cargoes...
Shortfall is not yet supplied by that.
Our next question is from the line of Pranita Shetty from Morgan Stanley.
Sir, this is Mayank. A couple of questions on the CapEx side, first. Can you just talk us through in terms of your full year CapEx for FY '25 and how much of that will be incremental on the pet-chems front? And Secondly, if you can just talk about a bit around the long-term sourcing contracts. Obviously, you signed one, but how does that kind of impact the overall spreads that you were talking about on the marketing side?
The new contracts you are talking about, how it will affect?
Yes. So when does that impact kick in, in terms of earnings for you, I think, FY '26 or onwards? Or does...
The supplies are to start from '26 onwards, therefore, those impact will only come from '26 onwards.
But sir, were they be back-to-back contracts as well? Or you we think there will be kind of like we have seen over the last 5, 7 years, some of that could be...
Actually the back-to-back era is over. Though it is always good for you and to have a sustainable kind of thing. We also wish to have that -- we will try to do that. But now it is -- you have lot of opportunities available, it depends what kind of prices you have sourced, and what kind of market it is. There are a lot of marketers. So we expect -- because we have a good price under that contract, we expect to have not back to back, we expect to have more than what marketing margin we are earning today.
So sir, just out of curiosity in terms of the volumes that you are thinking on a portfolio basis now, like in 5 years' time or so, what percentage could look like on back-to-back and what percentage you will take exposure on your balance sheet?
So it is difficult to as on date because the supplies are to start from '26. I can share about current portfolios, but since it is too far from today, we'll start marketing for those contracts now because we have recently signed the contract. So now we'd go to the market as we expect -- we want those contracts to be signed on back-to-back basis with a good margin. Now when we go to the market, then only we'll be able to know what kind of will be -- exposure we will be carrying. But there will not be any exposure because that's I think a very good price we have entered into those contracts. And with respect to your question on CapEx, financial year '24, '25, we target to incur INR 17,000 crores of CapEx. Mayank, are you getting?
Yes. So sir, can you just help us give us a bit of that breakup because the numbers...
Yes, around INR 3,000 crores on pipeline projects? INR 4,400 on petrochemicals. And around INR 3,000 crores we target to incur on net zero. Around INR 750 crores on operational CapEx, and around INR 5,000 crores equity contributions to JVs and subsidiaries.
And sir, this pet-chem CapEx will be largely driven on the PDH plants as well as the PTA plant. There is no shutdowns or anything for the PATA plant, correct, for fiscal...
Largely on Usar PDH, whatever CapEx we will incur for PTA will be informing part of equity contribution to JV subsidiaries.
Okay. Clear. And sir, no major shutdowns or anything planned for fiscal '25 on PATA, correct?
No, we are not expecting anything like major shutdown. Any routine shutdown may happen, but not as of now, we are not...
Our next question is from the line of Manik are from Franklin Templeton India.
I have a couple of questions. One is on the 1 million tonne LNG contract, which have -- Vitol recently. Vitol is a commodity trader, and this deal is probably different from other deals, any other or any LNG offtake in India, including you have taken so far. Is there any difference in dealing with the commodity trader versus dealing with -- dealing directly with the E&P company in terms of probably slow -- flexibility. Are any other terms because of which you are dealing with the commodity traders now? That's my first question.
Yes. Good afternoon. This is Kaviraj I'm heading LNG Group. To come to your question, we don't see there will be any difference between an optic type done with directly a producer and the trailer for that matter portfolio, okay? But different players come with different plus and minus, okay? In this case, we got a couple of good flexibilities, which we thought would be very much useful in our LNG portfolio, so we went ahead. Nothing significant different from other suppliers.
So can we expect that the slow clear also would be more or less in line with what we are doing with the producers or there would be any difference there?
No, I don't want to say anything on this, but definitely, this one is very competitive. I don't want to give a judgment on qualification saying that it is better than producer or vice versa. All I can say is it will be very competitive.
Got it. And my second question is more of a follow-up to what Sabri was asking earlier on the gas marketing side. Sir has mentioned that time swaps and destination swaps and ship-to-ship transfers, what probably the key reasons for the rise in guidance in gas marketing business and continuous outperformance than what we were expecting.
But if I go back maybe 4 or 5 years back also, we were doing all of these then also, right? So what is the key change that has happened in the swaps, ship-to-ship transfers that has happened over this period, if you can throw a bit more color on that?
And also if you can, along with that, provide how much percentage are -- how much of marketing volumes were on swaps on a quarterly run rate basis in FY '24, for example, versus, let's say, 3 years back in FY '20?
Actually, one significant difference, what you are asking 5 years back and today is that, largely, we were marketing our volume in overseas market because the demand was not to the current level. Now the demand in the domestic market is there, and we are able to consume all our sourcing from international market and domestic market. So when we were doing those swaps largely to mitigate our volume risk not to optimize the cost, right? That was one factor, which is different than -- because 5 years back, the demand as compared to today was less. Is that...
Yes. Just to add, as our Director of Finance rightly said, in the past, we did a swap for a different objective, okay? But currently, we are doing swap as part of our LNG portfolio operations, meaning, thereby, the swap which you do is on a case-to-case business. Earlier, we used to do a swap for, let's say, 1 year or 2 years, something like that. But today, perhaps almost every alternate cargo, we try to create value by doing a swap. And that is the reason there is a spike in this value. Am I able to answer this?
Yes, sir. Just an extension to that. Sir has started off with saying that we have transferred more volumes to India versus selling more of them earlier in international markets, right?
Yes, yes.
So do we have to take it that we are able to earn more margins on this India sold volumes relatively than what we were getting earlier when we were selling them on international markets?
Yes. Yes, obviously.
I said during my -- the marketing margin is not only a function of what price you are marketing. It is also a function of what gas cost of gas sold you are able to arrive at. So when we did optimization, we were able to reduce our cost of gas sold significantly. So when you -- one of the analysts were asking that you have fixed kind of marketing margin we are not able to arrive at.
So they are working off from top line. I'm telling we are able to reduce our cost. So both things have played role, not only the gas price at which we marketed, at what gas -- cost of gas sold, we are able to have our cost saves. So those 2 things are working and that's how we are able to have good marketing margins, and we'll continue to do so.
Understood, sir. If I can just squeeze in one last question related to this only. How many trading hubs have you created currently globally from the gas marketing division?
We have only one in Singapore.
Okay. So apart from India, there is only one in Singapore. Nothing in the U.S. or European markets?
No. In U.S. they handle the operation of the LNG contracts that involves trading of gas, upstream gas, whenever we face some operational difficulties. So in true sense, it is not a trading hub.
Our next question is from the line of Aman Nath from Ministry of finance of [ Oman ] .
My first question was with respect to the value unlocking activities with the management and the Board were thinking whether with respect to CGD or with respect to merger or reverse merger with your petrochemical side, any update you can give on this regard, at the moment?
Actually, we have not come out with any such kind of value creations through this investment of CGD or Petrochemical. Yes, we are internally evaluating and we will take this call at an appropriate time. But til now we have not concluded what we'll do about these investment -- and there is no thought of petrochemicals.
One thing I was just trying to understand. Now every year, the capital expenditures towards this petro-chem side keep on increasing, whereas the uncertainty relating to that business compared to our main business of gas transmission and marketing is quite high. As you correctly said, output price is not in our control, only thing we can do something with respect to our input price. So what is the rationale behind so much of expansion towards the picking side of the business and increasing the overall uncertainty...
First thing is that Indian -- demand on petrochemical side is lowest if you compare with the world average per capita consumption, and even if you compare with the developed countries like China, it is significantly low. So let us talk first, there is a demand. Second, with respect to uncertainty in terms of realization, the current investment which we are doing in Usar is on PDH/PP, the input for which is propane.
And the output polypropylene is directly having correlation with the propane price. So we expect to earn a certain delta of margins between input and output price. So our investment is quite cautious based on long-term analysis of input and output price. And we -- like we currently have sometime uncertainty above the PATA Petrochemical and we expect we will have consistent profit in the new investment which we are making for PDH/PP Usar.
Sir, just to interrupt, making the profit is not all the things, it's the allocation of the capital and the return on capital employed. Now if you can help us to understand compared to the capital allocation towards your main business and compared to that with the petrochemical business, how was -- on capital do you earn from that business of the pet-chem so far all on an average?
Actually, we are there to invest -- and currently, we have been able to win all the authorizations for pipeline which PNGRB crumbs out, we are not in a position to decide and lay the pipeline. We certainly can look for the -- any opportunity for investment in pipeline projects, but at least that should be available. So currently, there is no opportunity available, and we are only entity in last period who have through PNGRB won all the authorization. We were rather sometime single entity to have bid and got the authorization. So we are there to invest in our core business that is laying, building, operating the natural gas pipeline. But at the same time, if we find there are opportunities for investment in other business segments and -- which we continue to do because ultimately, we have to find growth. And if we find that growth in some of the business is sustainable. So that's how we decide and allocate our capital.
Yes, understood. But is that capital allocation towards your pet-chem could apparently have much lower ROCE, it's taking your entire company's ROCE quite drastically down. That is the point I just wanted to have, you need to have allocation...
Your experiences of PATA Petrochemical, that how based on that -- based on the availability of project at Usar, which is on a different field. So in order to -- not to have the uncertainty, we have gone for propane dehydrogenation, not on gas-based plant.
And any idea about this hydrogen plant related investment, where we are? And also, what is your reason with respect to the expansion to that side of the business. Though it is very -- at a very enhancing stage relating to hydrogen, but last call, I have understood from you that you guys are thinking kind of in diversification towards this non...
Sir, we request that you return to the question queue for follow-up questions as there are several participants waiting.
This is my second question only. Sir, this is my second question. You allowed me to ask 2 questions, right? This was my second question only.
So regarding your question on hydrogen, we are only putting up a pipeline project at our one of the -- and then you asked why, energy transition is taking place. And whether we like it or not, the energy transition will happen. So in order to be future ready, so we are -- as a pilot project, we are putting one of the hydrogenation plant at -- hydrogen plant at our one of the units. And the investment...
Hello?
Yes. you got it.
Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Probal Sen closing comments.
Thank you very much. I would like to thank everyone for sparing their valuable time to attend the call, and thank you so much to the management for taking the time to give such detailed answers to all of the queries that have been put. I appreciate that. We can end the call now. Have a very nice day. Thank you.
Thank you.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.