GAIL (India) Limited (GAIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GAIL India Limited Q1 FY '27 Earnings Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vivekanand Subbaraman from AMBIT Capital Private Limited. Thank you, and over to you, sir.

Thank you, Palak. Good day, ladies and gentlemen. On behalf of AMBIT Capital Private Limited, I welcome everyone to GAIL India Limited's First Quarter Fiscal '27 Earnings Call. Today, we have the pleasure of having with us the senior management of GAIL led by its direct [indiscernible]. I will now hand over the call to the management for their opening remarks, which will be followed by Q&A session. Over to you, [indiscernible].

Okay. Thank you, Vivekanand. I extend a welcome to all of you, and thank you for joining us today. I also take this opportunity to thank our investors and analysts for their continued trust and engagement with the company. For the financial year 2027, began a mid-star volatility triggered by the base Asia crisis, which impacted certain GAIL bonds. The company managed the disruption through a combination of portfolio flexibility and spot sourcing while continuing to support customer requirements and India energy security. GAIL's diversified portfolio proved to be a key stint in navigating the quarter effectively. During the quarter, the energy sector faced significant challenges arising from the geopolitical developments and supply disruptions. Before I move on to the operational and financial highlights, I would like to place or record my sincere appreciation for the entire GAIL team. Our team worked relentlessly to ensure continuity of the gas supplies and meet customer requirements. Their dedication, resilience and customer-centric approach enables GAIL to navigate the distance affectively while supporting India's energy security, which is reflected in the quarter's econ performance. In summary, Q1 FY '27 demonstrated that [indiscernible] indicated business model with a strong financial performance, quoted by portfolio diversification, disciplined supply management and continued investor strategic growth projects. Moving the key business highlights for the quarter. During the quarter, the entire 1,707 kilometers mobile also got a pipeline becomes operational on 31st May '26 making a significant milestone in strengthening GAIL Gas transmission infrastructure. Pursuant to the LT order dated 3rd June '26, [indiscernible] Limited become a wholly owned subsidiary of GAIL India Limited with effect from 6th July '26. This will help GAIL, streamline operational, more effectively bring tax efficiency and make our LNG sourcing more competitive. PNGRB also authorized for the 3 LPG pipelines, namely [indiscernible] kilometers was received on 14 July '26. The combined length of this pipeline is over 1,800 kilometer with estimated investment of around INR 6,700 crores as per over 3 years. Moving to the performance highlights. First, we discussed about the stand-alone profitability, gross turnover for the quarter FY '27, stood at INR 38,912 crores, had against INR 34,591 crores in Q4 FY '26, reflecting growth of around 12%, supported by elevated crude and LPG prices and GAIL diversify portfolio. The company delivered a robust financial performance during the quarter. PBT stood at INR 5,773 crores, had engaged INR 1,577 crores in Q4 FY '26. PAT stood at INR 4,292 crores as against INR 1,262 crores in Q4 FY '26. Moving to the consolidated financials. On a consolidated basis for Q1 FY '27, turnover stood at INR 41,277 crores compared to INR 35,489 crores, in Q4 FY '26. EBITDA was INR 7,573 crores versus INR 2,703 crores in the previous quarter. EBIT stood at INR 6,268 crores as compared to INR 1,966 crore in Q4 FY '26. But excluding minority interest, it stood at INR 4,665 crores as against INR 1,485 crores in Q4 FY '26. Moving to the segmental performance and outlook. First, we discussed about the gas marketing due to the force major declare by [indiscernible] volumes from the Qatar were impacted. Additionally, from [indiscernible] cargo from other contracts were also affected during the quarter to meet the demand gap. GAIL sold 84 cargo during Q1 FY '27. Our gas market volume stood at 93.82 MMSCMD comprising 8.76 MMSCMD in the international market. Favorable movement in price indexes supported the elevate market in spread during the quarter. Higher returns were generated from the Henry Hub linked and JSCC9-months linked sourcing where the [indiscernible] were not index on the same basis. This advantage is expected to be largely short term at the 9 months and the 3 months JCC averages are expected to convert over the time and the benefit from the index movement is likely to normalize. In view of the continued volatility, we maintain our gas marketing guidance for FY '26, '27 at around INR 4,500 crores PBT. We will further review and revise the guidance if required after declaration of the results for the second quarter. Moving to the [indiscernible] volume for the quarter FY '27 stood at 120,236 MMSCMD as against 118.99 MMSCMD in the previous quarter. The Q1 FY '27 transmission volume is broadly in line with the FY '25, '26, with the increase primarily on account of [indiscernible] which rose by around 4 MMSCMD during the quarter. Based on the current rating trends and the Q1 FY '27, volume of 122.36 MMSCMD, we now expect natural gas transition volume for FY '27 to be around 123 MMSCMD with the [indiscernible] that the geopolitical situation continue. We will continue to monitor the evolving geopolitical situation and domestic demand, and we'll update the guidance if material changes warranted. Under the polymer business, due to the diversification of feedstock natural gas towards the priority sector in line with the government varies notification, degrading natural gas, IDCL commodity, polymer production during Q1 FY '27 stood at 51 CMD. The segment [indiscernible] of INR 130 crores for the quarter at Pergenthe plant is running at 100% capacity, and we expect it is to be at the big level during FY '27. We are actively pursuing the set of [indiscernible] complex from natural gas to ethane [indiscernible] to ensure long-term sustainable margins. Moving to the LSC and LPG transmission in the LPG transfuser segment, volume stood at 1,077 TMT as against 1,114 TMT Q4 FY '26, down around 3% primarily due to disruption in the LPG import on account of the best prices. In the LSE segment, the company increased production by around 20% in the quarter from 194 TMT to 232 TMT supported by additional allocation of domestic new well gas of approximately 0.597 MMSCMD. Product likely to remain in the range of throughput during the last year. The LSC segment reported PBT of INR 772 crores during the Q1 FY '27 as against INR 144 crores in the previous quarter and INR 489 crores in the previous financial year, added by higher PG prices due to the base ACR dischargers. Moving to [indiscernible] GAIL CGD network across [indiscernible] comprises 217 [indiscernible] Q1 FY '27, GAIL CGD business at about 2,069 PNG connectors and 3 CNGS. GAIL India Limited, which is wholly owned dairy of GAIL currently operates [indiscernible]. During Q1 FY '27, GAIL Gas added about 16,610 PNG connections as of [indiscernible] connections. Over the next 2 years, GAIL Gas target to add around new CNG citations and about 3.7 lakh new DME connections. During the current financial year for current quarter FY '27,turnover of GAIL Gas stood at INR 3,326 crores as against INR 3,227 crores in Q4 FY '26. PBT increased by 3% and stood at INR 162 crores as against INR 158 crores in Q4 FY '26. PAT was up by 3% and it stood at INR 120 crores as [indiscernible] in Q4 FY '26. Moving to the ongoing projects and comp CapEx pipeline projects, VDP remaining section NPL Phase 2, [indiscernible] Pipeline and C2, C3 pipeline. Our stud for completion in the current financial year, [indiscernible], capacity augmentation or studies for completion in FY '27, '28. JLPL [indiscernible] be completed in July '28. Petrochemical projects, the 1,258 PTA plant at DMPL [indiscernible] stage of commissioning and should start production shortly. The 500 [indiscernible] institute to the commission in the next financial year. And moving to the other tax plan during the Q1 FY '27, GAIL incurred a capital outlay of INR 6,176 crores, demonstrating a strong progress across strategic growth initiative. These sustained investments underscores our commitment to a strengthened gas infrastructure enhanced downstream capabilities, advancing clean energy projects and supporting India's long-term energy transition and energy security objectives. We remain on track to achieve our FY '27 capacity capital outlay guidance of around INR 11,500 crores. That concludes my overview of the quarter performance, segment-wise outlook and key projects. Over to you, Mr. Vivekanand.

[Operator Instructions] The first question is from the line of Vivekanand S. from AMBIT Capital Private Limited.

Thanks for updating your guidance on transmission as well as marketing and petchem. Just drilling deeper into the drivers of the transmission volume growth. If you can help us understand, you had a volume of 127 MMSCMD in FY '25. Now clearly, FY '26, '27 were down to very specific reasons. But how to think about the demand outlook beyond FY '27 considering that the government is taking multiple steps to derisk the country from the overexposure to LPG in certain sectors. Is there any change in demand outlook that you have experienced as far as the government's push is concerned? That is my first question. The second one is on the gas sourcing side. So some of your new contracts, particularly [indiscernible] volumes, they will kick in now, right, this year. So just trying to understand in terms of your term portfolio, what are the incremental deals that you are planning to sign? What would be the duration benchmark? If you could talk about that, it will be great.

Thank you, Mr. Vivekanand. Coming to the first question, further demand. As you know, PNGRB has completed the document paper where it had mentioned that during the -- by 2030, the total demand will be 297 MMSCMD. Currently 200 MMSCMD. So there will be increase of about 100 MMSCMD. And 100 MMSCMD will come from first from the CGD sector. Second, from the fertilizer sector, third one was the year, power sector, fourth one the industries, which includes steel, almonium, et cetera. And last one is the LNG long-haul LNG truck. So these are the areas where demand will come in the future. And moving to the second question regarding the sourcing, so right now, we have 16.5 MTPA in our portfolio. And earlier, our Chairman, I already told that we will sold around 7 to 8 MTPA by 2030, our [indiscernible] around 2.5. So rest, we are on working on it.

Just to help us understand the, let's say, the road map because the 2030 outlook, now we are not very far off I mean, less than 3.5 years. So to understand how much of the 10 MMSCMD incremental land will come from the various sectors. Do you have any more working that you've done? Because I understand that the PNGRB had done this at a time when the market was very normal, there was an lot expected globally. But the way station or is likely to have changed many things here. So in your view, what do you think is now perhaps updated demand projection that you are working with, and you believe is plausible in, let's say, FY '28 and FY '29? .

Basically, based on the currency tradition, we have not revised our volume. So we are totally relying on PNG published figure. So certainly, there will increase. I already told about the CV sector where the growth is around 10% to 12%. So currently, it is around 45, 46 MMSCMD and by 2030. As per the PNG, it will increase to [indiscernible]. And second one, in the fertilizer sector, there will be around 10 to 12 MLMT growth will come by 2030. Third one is the power sector. Currently, we are consuming in the power sector is around 25, 26 MMSCMD. It will increase to 30,35 MMSCMD. And in the other segments, I've already told you the long-term haul truck all our steel and cement, the growth will happen in these sectors.

[Operator Instructions] The next question is from the line of Probal Sen from ICICI Securities Limited.

Congratulations on a strong set of numbers in a challenging environment. Just had a couple of questions. Number one, obviously, trading has surprised positively in terms of the margin performance and get if we look at the guide of INR 4,500 crores [indiscernible] very steep decline in terms of the quarterly run rate, if we look at what we have already achieved in Q1. So how should we look at it, sir, there is [indiscernible] at this point of time is almost a decent probability of further upward guidance or is there a huge normalization that can happen when you see 3-month linkage actually kicks in and converges to the 9-month number. Just if we can understand a little bit more.

See, Probal, I think I rightly pointed out that we have been telling this in earlier quarterly calls also that the index contracts, which is not [indiscernible] It is on 9-month [indiscernible], but roughly it is same as [indiscernible] but it is covering 9 months [indiscernible] with a lag of 2 months and whereas our all the downstream sales are on 3 months [indiscernible] so there has been earlier years also cash flow differences have been there, which are getting normalized over a longer period of time. So what we believe at this time in this quarter was abnormal jump in the Brent index numbers, which contributed to very higher realization in terms of sales, and we had has contributed significantly. But this is one of the [indiscernible] within the year that what we understand. However, it depends on the level of debted bent in the coming months, which is depending on how many international factors.

Got it, sir. Sorry to harp on this again, but another significant part of our trading portfolio is the [indiscernible] gas there. So it's very clear that we have prices are continuing to be at a discount to issue [indiscernible]. So that advantage will still sustain. There is nothing specifically one-off about that phenomenon. I mean obviously, the differential may narrow a bit, but that can match -- is it fair to assume that, that advantage would continue to sustain for us for even the rest of the year?

No, that -- again, that depends on the levels of Brent Index and the [indiscernible] in the remaining months. Of course, we are continuously striving to hedge certain volumes of the [indiscernible] which we are having on the cost index. As far as [indiscernible] is concerned, roughly half or slightly less than half core on back-to-back investment another maybe 20% goes for our own consumption in [indiscernible]. So the cost index, whatever is available is not a very high number. Yes, definitely, that is in a [indiscernible] spot right now. So that contributes positively to our top line and bottom line.

The second question was about the LPG business where you mentioned the additional allocation of 0.6 CMD. So in terms of production run rate, should we assume that the production lending that we've achieved in this quarter, that will say be maintained for the rest of the year? And what was the average pricing that we saw for our realizations in this quarter?

Basically, during the last -- during the average price during the last quarter, it was around INR 90,796 and moving to the production side, basically, we have allocated additional 0.597 MMSCMD. So earlier, we had allocation of about 1.32%. So total is our allocation is around 1.9%. So based on the 1.9%, we been able to produce what we produced during the last quarter.

The next question is from the line of Yogesh Patil from Dolat Capital.

Congratulations for the great set of numbers, sir. A few questions on the petrochemical part a facility. What was our average gas cost for the petrochemical during the quarter? And what gas price do we expect petrochemical operating profit will come into the positive side?

During the last quarter, the average price of petrochemicals landed price was $10.54 per MMBtu.

And sir, any guidance that at what price we will be profitable on the petrochemical side? At what GAAP cost?

It's around $13, $14 landed price and selling price is around [indiscernible] There will be no profit and loss.

Sir, related to us and the GPL again. As you mentioned, USA is going to start next year and GMP very soon. But could you approximate time lines when these projects will be fully commissioned? That's one. And secondly, when it is contributing to the EBITDA. On the second side, will it be a second half of FY '28 or to give us -- I mean, will you give us a guidance on the FY '29 side, full profitability will reflect in FY '29?

Basically, we have not booked out profit for the FY '27, '28 for the GNTL and 3D TV, but certainly our GMP plant is under commissioning and produce will start very soon. And regarding the 3D HP plant, this plant as per the time line, it should be commissioned by June '27, but it will take another 6 to 7 months and it may be completed by December '27.

Last question on the PNGRB action plan 2027. So sir, they have mentioned promotion of transfer and the competition in the gas infrastructure. Under this paragraph, PNGRB has mentioned that unbundled functions and creation of an independent transport system operator, what we understand, recently, the gas can have canceled the unbundling of the GAIL transmission in the trading segment. Can you just give us a little bit clarity on these [indiscernible]

Basically, in the year 2014, PNGRB came up with the cloud 5 for the unwinding of GAIL [indiscernible] any entity, which are in the transmission and marketing business has to separated weak effect from 1st April '27. So for this, we were went in the fourth and the case, we are still pending. And recently, PNGRB had withdrawn Cloud 5 from their regulation. So right now, there is no obligation for unbundled for the entity, which they engage in [indiscernible] that marketing.

Okay. So then what will be the role of PSL system operator, independent PSO?

PSO will have [indiscernible] the third-party basically in any pipeline, we have 25% for the third party, so open access. So they will monitor the open excess quantity.

The next question is from the line of Siddharth Chauhan from 360 ONE Capital.

I have 2 questions. Firstly, in the gas transmission business, was system used gas, do we get HPHT gas or you have to rely on spot energy? That's my first question.

Yes. Basically, we are using HPHT gas. So we had already purchased HPHT gas in the past. So we are using the same gas.

We are using HPHT that was earlier awarded for bidding, so it is available. Going forward, the PNGRB has come out with the regulation where [indiscernible] least 3 years or more has to be done for procuring the gas for the [indiscernible] purpose.

Understood. And any thoughts on that? Have we planned our sourcing for the next 3 years?

We are examining that [indiscernible] definitely, [indiscernible] is a must for operating the pipeline. So we'll be planning that.

Understood. And lastly on [indiscernible] LNG plant, when will the heating system be installed? And secondly, will it be fair to assume that all the incremental deals on the sourcing side will be brought to double LNG for regasification?

The ambient will be completed by next year by June '27.

And the next question was that will it be fair to assume that the incremental deals on the sourcing side, all the volumes will be brought to [indiscernible] LNG for regasification? So as you mentioned, 7 to 8 MMTP you're targeting by 2030 and you have already sourced 2.5.

So generally, all the deals are having Western India opportunity available with them, where we can change the [indiscernible] so definitely, we'll [indiscernible] once the terminal is fully ready to use as much as available short as possible.

The next question is from the line of Amit Murarka from Axis Capital.

[indiscernible] LNG, I believe a lot of it is back-to-back contracted. So just wanted to understand like what percentage of it is still open and how much is in the contract from terms now?

So I think this has been answered a few minutes back in another question. But as I said, we had a portfolio. We have a roughly portfolio of 21 MMSCMD on [indiscernible]. And out of which around half or slightly less than half is contracted back to back another 20% goal for our own internal consumption in petrochemical complex remaining maybe 25% to 30% is available for sale in Brent contracts that is available on cost in test, and we are time to time hedging and locking the margin for this cost index basis.

And given the high differential right now between the 2, between [indiscernible] uplink and Brent-linked. So is it fair to say that at least in second quarter or the near term, the margins that we capture from this open-ended volumes will still be quite high then?

[indiscernible] plant was partly operational during quarter 1. It started in the mid of May. So now -- and only -- it was operating on 50% growth. Now Pata is fully operational on 100% load. So the volume, which was -- which is designated for Pata will be consumed in Pata -- so we will have less arbitrage available to play with HH.

Got it. So -- but still like given the [indiscernible] prices are also very high. So in that case, then say margins will now get captured in petchem to that extent?

Yes. But we cannot be so sure of petchem prices. It will anyway be determined by the market process.

And price has already softened if you compare with the previous quarter.

The next question is from the line of Sumeet Rohra from Matson Capital.

Many congratulations on a great result. Now sir, I just wanted to get your sense on this gas marketing. You said that INR 4,500 crores is basically what you're targeting on a PBT level for the whole year. And you've done about INR 3,600 crores in the first quarter. Now you -- I also understood you said that this is linked to bring, dated brand. Now assuming, sir, Brent is averaging around, say, $90 or between $80 and $90, even in the second half I mean, the second quarter, how do you basically think this gas marketing number should look because that's a very big moving part in the results, right? Because if you see on a total PBT of INR 6,500 that is INR 3,600. So if you can help understand on that, then you'll get a better sense on numbers on gas marketing. And sir, secondly, also on the LPG, you've reported INR 772 crores versus INR 205 crores. Now that is also quite a high number. So do you also see this INR 700 crore plus number sustaining for the balance of the other quarter, sir?

Moving to the second question regarding LPG. The price of LPG in the last quarter, it was around INR 9,796, and price has always softened in the current quarter. So certainly, there will be decrease in the LPG profitability. And regarding input side, so we are using some portion of the APM gas, the price is around $7, and so we are using some new well field gas price down $12 to $13. So based on the these situations, whatever we earn for during the last quarter, certainly, this property will decrease during the current quarter. And regarding the gas marketing profitability, we reported around INR 3,363 crores at PBT level. So we have already explained earlier that our total guidance during the current year, it is around INR 4,500 crores. So if any change will happen in the coming days, so we will come up with the revised guidance.

But just one thing, so this INR 4,500 crore has been a number which has long spoken in the last 2, 3 years. So do you think that it's more or less going to remain around here? Or at some point, you're going to see a very sharp acceleration in those numbers?

The situation is very volatile. Keep moving. It's changing every day. So the result extraordinary results that we got in quarter 1 is due to JCC and SEC 9 months and 3 months arbitrage that we got and over the long run, these averages are going to converge. So second quarter, the JCC 9 months average, it will reflect the current rent prices to some extent. So the margins are going to shrink as we go forward. So the same kind of margins that we earned in quarter 1 may not be available in quarter 2. And if rent goes down significantly, we may lose on that number because the 3 months -- Brent 3 months will start reflecting a lower number than our sourcing. .

The next question is from the line of Sabri H. from Emkay Global.

Congratulations on stellar set of numbers. So 2 questions. First is on the transmission side. I think the expenditure on the transmission side is quite low if we adjust for the one-offs, which was done in Q4. So was there anything specific during Q1? .

In the last quarter [indiscernible] Basically, provision has reduced from INR 111 crores to INR 11 crores. So the total cost has decreased mainly due to the provision.

Okay. But there was nothing like no change in gas sourcing mix for the [indiscernible]

No.

Okay. Okay. Fair enough. And second question is on your fertilizer plant. So these are all assured projects, right, in terms of 12% to 16% IR, which I think the government has also stated. So there will always be like profitable? Or is there some risk of like cost overshooting and you are not able to make that much money. Is there any risk [indiscernible]

Basically, [indiscernible] the Ministry of Fertilizer has published the new urea policy for the investment. So we are going for the 2 fertilizer plants, one in the Maharashtra and other one is the [indiscernible]. And the -- all the plants are under active evaluation. So whenever we so whenever we finalize our DFR and initial [indiscernible] will come inform you with [indiscernible].

The next question is from the line of Mayank Maheshwari from Morgan Stanley.

I had a question around how you have moved a [indiscernible] over the last quarter to improve your market share in marketing, specifically -- is there something that you can tell us about because as I said, this has been a [indiscernible] portfolio on glass-sourcing has been [indiscernible] any you can quantify in terms of long-term market share that will be seen because of [indiscernible]

Can you repeat your question? We cannot hear you.

Can you please use your handsets?