Adani Total Gas Limited (ATGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Adani Total Gas Limited Q3 FY '24 Results Conference Call hosted by Antique Stockbroking Limited.[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stockbroking. Thank you, and over to you, sir.

Thank you, Lizan. A very good evening to all the participants and the top management of Adani Total Gas. We would like to welcome all the participants and the management of Total Gas -- Adani Total Gas to this call. A very warm welcome to all of you. And I would like to hand over the call to Adani Total management for the initial remarks. Over to you, sir.

Thank you. Varatharajanji, I'm Suresh Manglani from Adani Total Gas. Let me extend a hearty welcome to all our investors, analysts, funds for taking out their time and participating in today's call in Q3 -- on Q3 and 9 months FY '24, results of Adani Total Gas. First, let me give you the highlights on all our businesses. In our core CGD business on CNG Infrastructure as on 31st December 2023. During this quarter, Adani Total Gas has crossed 500 CNG stations' milestone. And today, we have 505 CNG stations as on 31 December 2023. Out of these 505 stations as we have been emphasizing that we are also focusing simultaneously to develop our own branded -- full-formatted branded stations. We call it a company-owned dealer operator or dealer-on-dealer operated. Now we again achieved one more milestone within CNG stations is 100 stations we have achieved on the format of CoDo, DoDo. Our steel pipeline infrastructure has now increased to 11,712-inch kilometer. This forms part of a backbone in infrastructure, helping company to expand its reach of PNG and CNG to large consumer base. In a summary, on an average, 3 kilometers of steel and MDP pipeline is being laid on a daily basis by ATGL. We have added 22,700 in Q3 and 77,697 in 9 months period, PNG to the new homes in this financial year. And now our consumer base has grown closer to 7.8 lakh homes. Similarly, as you are aware that we also equally focus on developing our anchor industry and commercial customers. We have added 222 new industry and commercial consumers and 636 in this 9-month period. Total number, again, a milestone has been crossed. Now we have -- 8,000 milestones has been crossed. We have 8,071 industrial and commercial consumers who are availing the benefit of piped natural gas. With this, and along with our JV, which is Indian Oil-Adani Gas Private Limited, IOAGPL, which has 19 geographical areas, 30 districts. Adani Total Gas has 33 geographical areas, 94 districts, put together 124 districts is where we will be having or we are having our footprints. We have reached to 835 CNG stations together, 9.3 lakh homes and 8,781 industrial and commercial consumers. Let me now give you some glimpse on E-Mobility business, which you are aware that we had set up a special purpose vehicle. Adani TotalEnergies E-mobility Limited is SPV, which is 100% subsidiary of Adani Total Gas. Within a short period of time, now we expanded our charging stations in 10 states and 46 cities. As on date, we have worked live with a good utilization ratio of 329 EV charging stations and 1,050 more EV charging stations are in the various stage of construction. We hope to expand our footprint from 10 states to 20 states and from 46 cities to 130 cities very soon in the future. On the biomass side, you are aware that we had set up similarly to the E-Mobility, we have set up one more special purpose vehicle, Adani TotalEnergies Biomass Limited. Company is currently setting up agri waste base and cattle dung-based, India's largest 600-tonne feedstock per day basis CBG plant in a location called Barsana, which is closer to Mathura and Agra. We are very happy that in this financial year in '23, '24, by March end, we are expecting that Phase I of this plant will be commissioned and will start producing CBG from that plant as well as the organic manure. And Phase II and Phase III will then follow in the subsequent financial year. Besides this plant, we also got the award of a concession from Ahmedabad Municipal Corporation of 500 tonnes municipal solid waste based CBG plant. We are complete -- we are doing a lot of preparatory work. We have already appointed our owner engineers. And we are now working with municipal corporation on allotment of a land parcel and then we'll start working on the construction part. And plus, we are also working on several other opportunities to expand multifold way our bio subsidiary like the way E-mobility subsidiary, we are making the plan. Another area which I would like to highlight to you is the -- we call it LTM, LNG for transport and mining. Now the LTM also, ATGL is embarking on the opportunities in the LNG segment as a transport fuel, with building its first LNG retail outlet has already started in Dahej, Gujarat and many more are expected in the very, very near future. We have developed a plan to set up LNG station network at almost all strategic locations in the country so that we can develop a complete network from east to west and north to south, serving the long-haul transport vehicle trucks and buses across the country. With our consumer centricity approach, our strategy will be to offer and explore a wider range of a sustainable energy fuel to all our consumers, which will help in reducing the carbon footprint and in achieving the Prime Minister's vision of net zero by 2070. Now let me share with you the operational and financial numbers during this quarter and in the 9 months period of this financial year. During the quarter, we have seen a good growth in our volume. With fast acceleration of a CNG network and high conversion from conventional fuel to CNG, our CNG volumes have grown by 24% in this quarter to 144 MMSCM. In Q3 as compared to the last year quarter and on a 9-month basis, CNG volume has grown by 21%. On PNG volume for Q3, we have grown by 15% on year-on basis to 80 MMSCM, while for 9 months period, it has grown by 1% because in the past, we saw high prices and trajectory and where we saw kind of a negative growth. But today, we have turned around the PNG growth to positive side to 225 MMSCM. This PNG growth is largely due to recovery in PNG industry segment and our customer-centric offerings to the industrial consumer, commercial consumer and in the homes. While on an overall basis, company witnessed an increase in the volume by 21% to 224 MMSCM in Q3 and 633 MMSCM in 9 months, which is up by 13%. So overall, in the 9 months, company has registered double-digit growth of 13%. On the financial front, for the Q3 as compared to the last quarter of the last year -- of the quarter of the last year, sorry, revenue from operations now are INR 1,243 crores, which is up by 5% because during the period, you all have seen that when APM ceiling came in, we have passed through the benefit which we got in gas cost to the end consumer due to which CNG prices has gone down. And as a result, you see much -- slightly lesser growth on the revenue side. While volumes have grown, financially, it is lesser growth because of the price rationalization for the benefit of the consumers. With increase in volume as well as efficient gas sourcing portfolio, EBITDA has increased by 26% and the highest ever EBITDA is INR 301 crores in this quarter. Profit before tax and profit after tax have increased to INR 231 crores profit before tax. And profit after tax has grown to INR 172 crores. PBT is up by 15% and PAT is up by 16%. Let me give you a 9-month glimpse. Our EBITDA has increased by 20% to INR 846 crores on a 9-month period. PBT and PAT for the 9-month periods have grown up to INR 655 crores and INR 488 crores -- PAT is INR 488 crores. The PBT has grown on 9 months basis by 14% and the PAT, P-A-T, has grown by 15% for the 9-month period. On the HSE part, we have been adhering to the highest safety standards, and we continue to maintain zero fatality rate across multiple locations that we operate pan India basis. You are all aware that ATGL has been simultaneously focusing on ESG framework along with the Board backed assurance policies, which enable us to have a sustainable growth with collaborative development of the community. In Q3, we have been awarded with a Climate Action Program, CAP, C-A-P, committed category by CII of CAP 2.0 award program for commitment towards climate change initiative. And we also won Golden Peacock Award for HR Excellence, awarded in '23 for our HR best practices. Lastly, I would like to acknowledge and be thankful the role played by our shareholders, analysts, fund houses, consumers, dealers, suppliers, business partners, media friends and all stakeholders who are associated with Adani Total Gas and above all, our employees. I'm greatly thankful to the team ATGL for delivering quarter after quarter. Overall, this is a fantastic result, a good set of numbers. Happy to receive your question and respond.

[Operator Instructions] The first question is from the line of Yogesh Patil from Dolat Capital.

Congratulations on good set of numbers. Sir, my question is related to shortfall in APM gas allocation to the priority segment. Why suddenly the APM gas allocation cut despite CNG and PNG domestic as a priority segment? Can you throw some lights on that side?

Absolutely. Yogesh, it's a pleasure hearing you again. I think -- and thank you for making it a point that you come every quarter investor call. I think you make others also enrich with the knowledge. I think coming back to a very pertinent question, I'm sure many of our friends will also like to listen our answer. Yes, shortfall grew this quarter. I think overall, we had 22% shortfall in the supply of APM gas. We -- in fact, the newer GA suffered a little more shortfall. But if you see the intent of the government has been very consistent. I think government maintained a strong setup of supply of APM despite there was some -- production losses were happening on the APM side. But we saw good support from government coming of a high priority to CGD sector. Because by nature, CGD is a public utility. And we are serving larger masses of our home consumer in CNG. During this period, what we understood was there was some technical issue at the -- on the offshore terminal site, which we have been told that there is a lot of work going on in bringing back some sort of more supplies. We believe this is going to be a temporary phenomena of such a high shortfall. We would have some deficit because numbers are growing. You are seeing the volumes are growing. APM field is what it is, actually, we all know. But we still believe that given the government focus, government commitment and the policy which has been laid down, we believe this is a temporary phenomena, and we will be back on getting much better APM supply, maybe not 100%, but I think, we will get much better supplies on the APM side as well.

So sir, as you said, this is a temporary phenomena, so is there any communication from GAIL side or ministry side that gas -- APM gas will get restored shortly? Any time line mentioned in that notice or communication?

See, as an industry, we are engaged. We are engaged with our stakeholders. So this is what we understand. Now communications are a formal one, which will keep coming and going. But I think more important is that we are engaged part of a stakeholder engagement. We've been sticking to -- whether it is GAIL, whether it is government authorities, whether it is PPAC, I think we are engaged with all and all of the CNG companies are doing the same thing. We also have collective body. So what we are understanding that government is working, ONGC is working to make sure that there is some more increase in the APM gas supply. We are hopeful because -- see, more important for all of us is to see positive part of the intent. Whenever we are engaging, we are seeing everybody is working hard to see more supplies come to CNG sector for home and CNG. So that when we procure higher-priced gas that will -- may pass through to the end consumer and government is sensitive that end consumers should not suffer higher prices. So I think my request would be, let's have some patience for some more time. As in CGD entity, we believe it will happen sooner than later.

Okay. Sir, next question. You have ventured into the compressed biogas side. So we wanted to understand the cost of compressed biogas compared with the APM gas. Practically, which gas is cheaper now in the market? And we wanted to understand that if the going forward CBG blending to go up, then the cost of gas for CGD companies will be lower or higher? So any color on that side?

See, color -- I think, first, we need to see India's costs. And as I said in my previous conversation with other friends, India's vision is very clearly self-reliance, sustainability, supporting climate change costs. I think blending of 1% initially and going to 5%, even if assuming that CBG will be slightly expensive, it's not going to make a difference in the pool of gas sourcing, which we all do. I think the important is that India must gear up to convert this waste, which is otherwise getting burned or getting dumped somewhere to CBG or much better fuels. So I think cost part will come around. This is a new segment. We saw when we were manufacturing -- started CNG part. We saw when we started renewable power part. I think economy of scale is building up. Technological solutions are improving. Costs are going to be reducing it. We should keep some longer term horizon on the CBG part. We believe this is a big win situation for the country. And we are -- that's the reason we ventured into the CBG side because we saw ahead of time that this is -- CBG is going to be the way. We all need more renewables, more organic manure, more renewable gases coming. In my way, I think, we should rather a little bit cost here and there, we should not see that way. We should see how do we make more and more CBG in this country and blend or sell CBG stand-alone.

So sir, currently, the blending of CBG is lifting the overall cost of a gas higher or lower? Just wanted to understand on that side.

It will depend. Yogesh, it will depend upon what is the size of a plant, what are the feedstock. You will find varying from different plant to different plant, how close you are selling from the plant. If you go to Varanasi, which is our first CBG station, you will find our CBG price INR 9 cheaper than the CNG, cheaper, because it is a factory outlet. We are set up along with the factory. So there are -- as you understand, every business will have several dynamics, how big is a plant. With Barsana, we are building up 600 tonnes. There will be economy of scale. How closer is the feedstock. Their feedstock is coming in the factory itself. Again, the logistic cost is reduction. How close you are selling the CBG? What is your -- so how much the yield is coming from feedstock? I think there are several factors. To my mind, just to answer -- to make sure that you go satisfied answer is that you see overall blended cost of ours, whether we are now fulfilling the shortfall from HPHT or other LNG or other domestic gas, I think CBG will be a good bridge when we net that because we'll have our own in-house CBG produced gas, which would perhaps be coming in the range of -- kind of this kind of ranges till we go to the much larger scale. But larger goal is we must ensure that there is a CBG. And as the scale goes up, it will come down -- the cost will come down. It's a domestically produced gas.

[Operator Instructions] The next question is from the line of Varatharajan Sivasankaran from Antique Stockbroking.

Sir, continuing on the CBG part, this 600-tonne plant, what would essentially be the yield of gas?

So Varatharajanji, it is a good question. I think -- now as we go along, we'll keep configuring and reconfiguring it with different types of feedstocks. So current feedstock, what we have decided to use will yield roughly 43 to 45 tonnes of CBG. And so now if we get much better feedstock quality, we get some enzymes, bacteria or some catalysts to do preprocessing, perhaps yield may go up significantly. If we get a little more deteriorated quantity, yield may come down. So on an average, we should get roughly 45 tonnes of CBG from the 600 tonnes of a plant.

Cool. How about the 500 tonnes of municipal plants? What would be your expectation on that volume?

Municipal solid, again, how much is going to be the -- what is the quality of an organic waste which we get. So if we get a very high-quality organic waste, yield will go up. But generally, 4% to 5%, 3.5%, 4%. So if it is 500 tonnes, 16 to 20 tonnes, you can expect that CBG could come. If we get a reasonably good quality of organic waste, if we get much better quality, the yield would still go to 4%, 4.5% or maybe 5%. The -- as I said in the previous answer, it's a new sector we are developing. Even the world is developing as a kind of a newer sector. This is for the world also a similar thing, whether we go to other developed nation. All of us, we are evolving technology, evolving various bacteria, enzymes, catalysts, it will be added. So we are looking for various technological solutions, whether -- how do we enhance the yield from, let's say, 4% to, let's say, 6%. That will make a huge difference on initial outcome as well as the pricing. But for the current purpose, we should take roughly 4%, 4.5%. That good quality organic waste should give from a municipal solid waste part.

Fair enough, sir. So what we find is that everyone is getting into CBG. Obviously, it is something which is a welcome move. However, like as analysts, we are always fairly, what to say, apprehensive about the economics part of it because the yield is variable, but the CapEx is upfront. So to that extent, like what would potentially be the IRR of these projects is what normally we wonder. So if you can give some kind of an idea of what to look at a number that would be useful.

See, one thing we should certainly satisfy you that if Adani Group for TotalEnergies are entering into CBG, that means there are financial number -- outcomes are being seen. More importantly, since we are also Adani Group company, I think most critical part for us is what is the need for a nation. So both the sides, we are marrying together. But at the end of the day, still we are seeing that there are financial good numbers setup will be able to come. If we really do the way Adani Group and the TotalEnergies are known for, how do we conceive the project, how do we execute the project, how do we bring value engineering, what should all we do on OpEx optimization? I think there are several drivers which you need to put in place to make the numbers looking better. If we also follow the trend of all other plants, which are already working. Largely, you'll find they're not giving good financial results. But despite that, we have got into this business, it means we are seeing it from different lenses. Our lenses are different. Some lenses could be more myopic. Our lenses are a little longer term and different. So we see a good financial number. Maybe Parag will give you a little more better number-based response. But I would say from a macro perspective. I think if we do a good job, if we are able to plan well, economic size is well, feedstock purchase is well, I think these projects are worth investing.