Gujarat Energy Limited (GUJENERGY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Gujarat Energy Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Dave, Company Secretary, for the opening remarks. Thank you, and over to you, sir.

Thank you, Ali. Good afternoon, everyone. We have with us Avantika Singh Aulakh Madam, Managing Director, Gujarat Energy Limited as well as senior management team from Gujarat Energy. I hand over -- I request the Managing Director, Madam to take us through details of operating and financial performance. Over to you, madam, please.

Good afternoon, everyone, respective shareholders, distinguished analysts, members of the investor community, ladies and gentlemen. On behalf of Gujarat Energy Limited, I extend a warm welcome to all of you to the company's earnings call for the first quarter of FY '26, '27. Thank you for taking the time to join us today. We are pleased to present the operational and financial performance of GEL for the quarter ended 30, June. This quarter is significant for the company as apart from delivering excellent performance across our key business segments. We also completed the listing and trading of our additional equity shares allotted pursuant to the scheme. Our post-merger performance reflects the strength of our integrated business model, bringing together scale, sourcing strength, operational synergies and broader capabilities across the energy value chain. We are today positioned as one of India's leading integrated energy companies with a presence across gas trading, city gas distribution, exploration and production and renewable energy. This integrated business model enables us to navigate evolving energy markets, support sustainable growth and create long-term value for stakeholders. Let me begin with our gas trading business. During the quarter, global energy markets witnessed significant disruption due to geopolitical developments and supply side constraints. Despite these challenges, we were able to leverage our robust sourcing capabilities, extensive supplier network and deep market expertise to secure critical LNG volumes for our customers. During the quarter, the company sourced 10 LNG cargoes despite unprecedented circumstances, demonstrating the resilience of our procurement network and our commitment to uninterrupted customer service. The Gas Trading segment delivered strong profitability with earnings before tax increasing to INR 726 crores in this quarter as against INR 237 crores in the previous year same quarter, reflecting a growth of 206%. I will now move to our City Gas distribution business, which continues to demonstrate healthy momentum across customer categories. In the CNG segment, we achieved a new benchmark with CNG volume of 3.76 mmscmd during this quarter compared to 3.33 mmscmd the previous quarter, registering a growth of 13%. CNG volumes in Gujarat recorded a 12% increase, while areas outside Gujarat delivered a notable 19% growth, highlighting our success in deepening our presence across geographies. Our CNG infrastructure has expanded to 844 stations. During the quarter, the company added six new CNG stations and upgraded nine CNG stations. I would like to draw your attention to the fact that the company is now planning to add more than 75 new CNG stations and upgrade approximately 70 CNG stations during the current financial year. CNG continues to remain an attractive fuel option for customers, offering a compelling economic advantage being approximately 46% cheaper than petrol and 25% cheaper than diesel based on current pricing. In the PNG domestic segment, we continued to witness healthy customer additions. During the current quarter, the company added approximately 59,000 new domestic PNG customers, taking our cumulative domestic PNG customer base to more than 24.77 lakh households. The PNG penetration drive has also gained strong momentum. In the wake of constrained LPG supplies caused by the conflict in the Middle East, the government of India took policy measures to boost PNG connections for domestic usage. In support of this initiative, GEL has undertaken focused actions, including aggressive marketing campaigns across various digital and print medium, mobilization of additional contractors for execution of new connections and prioritized outreach to essential category customers such as hospitals, community kitchens, etc. These efforts have translated into visible results. From January to June 2026, GEL connected approximately 91,000 PNG connections and more than 1,000 commercial PNG connections under the PNG drive. In the PNG Commercial segment, the company registered a volume of 0.17 mmscmd in Q1. As of now, we serve more than 16,600 commissioned commercial customers across our network. We expect additions in both domestic and commercial categories to remain robust as our newer geographical areas in Punjab, Haryana, MP, Rajasthan, Maharashtra continue to mature and deepen customer penetration. The PNG Industrial segment delivered a strong performance during the quarter. Industrial sales volumes increased 7.17 mmscmd in Q1 FY '27 from 4.71 mmscmd in Q1 FY '26, registering a growth of 64%. The Morbi Ceramic cluster continues to remain our largest partner in the PNG industrial segment. Our successful supply strategy provided significant support to the Morbi ceramic industry during the crisis period. The average volume in the Morbi ceramic cluster during the quarter was 5.67 mmscmd, while volume outside the Morbi cluster was 2.04 mmscmd. Morbi cluster volume registered an increase of 181% in Q1 FY '27 compared to Q4 FY '26. It is especially noteworthy that during the quarter, the availability of alternate fuels such as propane remained adversely impacted and the fact that we could source and ensure continued supply of gas even against an increased demand from Morbi cluster is in itself a testament to our gas trading capabilities. During the crisis period, our efforts in ensuring continuous gas supply to Morbi cluster has resulted into increase in gas volumes rising from approximately 0.4 mmscmd in April 2026 to around 8 mmscmd during May, June 2024. We will continue to closely monitor key market dynamics, including spot RLNG prices, availability of alternate fuels and end consumer demand trends across industries in our operating areas. Our focus remains clear to maintain the right balance between volume growth and sustainable margins while continuing to serve our customers reliably and efficiently. I will now present the financial highlights for the quarter. For Q1 FY '27, we reported revenue from operations of INR 9,670 crores compared to INR 5,924 crores in Q1 FY '26, representing a year-on-year growth of 63%. EBITDA stood at INR 1,482 crores compared to INR 896 crores in Q1 FY '26, reflecting a growth of 65%. Profit after tax stood at INR 998 crores compared to INR 561 crores in Q1 FY '26, registering a growth of 78%. On the volume front, our overall sales volume stood at 15.66 mmscmd. Notably, the gas trading segment continued to witness strong traction with sales volumes reaching 12.22 mmscmd, reflecting the company's growing presence and capabilities in the gas marketing and trading business. Out of this volume, 8.9 mmscmd volumes were allocated for our CGD segment. Further, the CGD segment contributed 12.34 mmscmd underpinned by a balanced volume mix across customer segments. Our infrastructure base also continues to expand. The company's total pipeline network spans approximately 45,900 kilometers across six states and one union territory. During the quarter, the company invested INR 127 crores in CGD infrastructure. Sustainability and safety remains central to our operations. To average Q1 PNG sales to industrial customers, the company helped reduce carbon dioxide emissions by approximately 1.07 crore kilograms per day due to customers using PNG instead of coal. Similarly, through average Q1 CNG sales, the company helped reduce CO2 emissions by approximately 21 lakh kilograms per day due to the use of CNG for transport instead of petrol or diesel. In conclusion, Q1 FY '27 has been a strong quarter for Gujarat Energy Limited. Our performance reflects the strength of our integrated business model, the resilience of our supply chain, the quality of our execution and the dedication of our teamwork. Looking ahead, global energy markets are likely to remain uncertain due to continuing geopolitical developments. However, we remain confident in our strategy. Our diversified sourcing portfolio, strong infrastructure, disciplined capital allocation and customer-centric approach positions us well to navigate challenges and capture growth opportunities arising from India's transition towards cleaner energy solutions. We remain committed to delivering sustainable growth, supporting India's cleaner energy transition and creating long-term value for all our stakeholders. With this, I now request the moderator to open the floor for questions-and-answers. And my leadership team and I will be happy to respond to your queries. Thank you.

[Operator Instructions]. The first question comes from the line of Probal Sen with ICICI Securities.

Congratulations on a strong set of numbers. Firstly, just to understand the math a bit, you mentioned that overall sales volume is 15.66, whereas gas trading sales is 12.2 and of course, CGD sales is 12.3. Apologies for not understanding where is the balance 3.4 mmscmd coming from? That is upstream sales, is it?

No, that is the gas trading, which we have done for other than the CGD business.

So you just mentioned that 8.9 mmscmd was internal out of 12.2 mmscmd.

Yes.

So then that would be the external sales, right?

Yes, that will be external sales. Correct.

So then that would be 8.9-plus whatever it is. How are we arriving at the 15.66?

I'll just tell you the numbers. 15.6 is the overall company number. The CGD segment number is 12.34.

Right.

And after removing the intercompany sale of 8.9 that's close to 3.32.

Okay. It's essentially, 12.34-plus whatever has been sold externally. That is the overall sales -- is that a fair way to look at it?

Yes.

The second question was more about Morbi. If I understood correctly, ma'am mentioned 8 mmscmd sales volume in the Morbi cluster for May and June. Just wanted to understand what is the run rate prevailing now? And what we are hearing is that propane availability is starting to become a bit easier. Just wanted to understand if that is having an impact on the business right now? And what is the respective pricing even a rough average of what our industrial sales versus the propane equivalent price, as of now?

So in the last quarter, we have sold close to more than 8 million volume in Morbi. But post-July, the availability of propane has gradually improved because we have started sourcing from non-Middle East countries, like U.S.A. and Venezuela and others. So as far as the current run rate is concerned, I think we are delivering close to 3 million gas in Morbi and close to 5.3 million, 5.4 million equivalent gas is being delivered as propane.

What would be the pricing, sir, if I can understand in terms of rupees per scmd terms, roughly, ours as well as propene?

Ours is close to 78 and propane is close to 65.

The other question was with respect to CNG, what kind of growth rate should one be looking at for the rest of the year? How confident are we of maintaining this 12%, 13% kind of growth in CNG?

I think we have been growing at close to 12 percentage, and this growth has continued and this quarter growing at 13 percentage now. Basically, we are expecting that. And with the MD told that we are going to add on more stations now. So that growth is expected to -- we'll be able to sustain that growth for the next couple of years.

[Operator Instructions]. The next question comes from the line of Amit Murarka with Axis Capital.

So with regards to the Morbi supply coming off to 3 mmscmd now, what is the visibility now you have of, let's say, going higher again or now that propane is coming from U.S. it's fair to say that the price gap will stay a bit elevated between propane and PNG and therefore, it will be tough to basically gain volume back in the Morbi market.

Well, currently, that is what it seems to be the case because spot prices being close to $20 and propane pricing being what it is right now. I think there will be -- I mean, gas prices would be at a premium to propane. And our expectation is that we'll continue to do close to [3] mmscdm of gas at least in this quarter.

If you could also highlight what is the margin that you will be making, let's say, this price of 28, which is the Morbi price which you just mentioned? Like in Q1, obviously, you had the operating leverage benefit, which I'm guessing you'll be making in Q2 now. So what really the gross margin you're making here?

I think we are giving the margin at a company level and the segment level. And I think the segment results are there in the investor presentation.

Also with regards to the Propene plant then now that Propene is getting available from other suppliers beyond Middle East, are you also looking to make more progress on your Propene business plans?

Yes, we have plans to have our own propane import facility. We have basically shorted a few sites in Gujarat where we can put up our own terminal. Those studies are going on. We will be coming to you with some details shortly. But we have plans to set up our own import and storage facilities of propane near the Morbi market.

Just last question, if I can, the third-party trading -- gas trading volume has dropped to 3.3 mmscmd, as you mentioned, which I think was close to 5 mmscmd earlier. So again, what was the reason? Was it the high pricing? Or was it the sourcing issues there?

Yes, because of the volume which got cut off from the Middle East and because of the high prices, volume has come off a bit. This time, power volumes are also not there. So that has also impacted.

Any outlook you could give there for quarter or later half of the year?

I think in the long term, we do expect good third-party volumes especially around -- especially in the year '28, '29, where we expect pricing to be much more reasonable.

Sir, in the long term volume will still be 4.5 million, 5 million range?

Yes. I think it should be in that range, 4.5 million to 5 million.

The next question comes from the line of Hardik with ICICI Securities.

Can you please tell the gas sourcing during the quarter? What was the CapEx plan for Q1? What would be for the FY '27-'28?

Can you repeat the question? We could not get you right.

What was the gas sourcing for Q1? What is our CapEx guidance for FY '27 and '28? And any incremental CapEx are we doing on the gas trading segment?

There is no CapEx on the gas trading segment, but there will be CapEx on the CGD segment, which practically we are giving a guidance of close to INR 1,000 crores. We still stick with that. With respect to the -- you need a sourcing split of the CGD business or the entire thing?

CGD and plus even on the gas trading part.

On an overall level, we are doing close to 20% on term contract basis. Domestic gas is close to 12.5% and the rest is spot.

The next question comes from the line of Bineet Banka with Nomura Holdings.

A couple of questions on gas trading side. Can you highlight how gas trading offtake contracts with your customers are structured? What proportion are back to back fixed margin and any trading volume that is exposed to pricing like similar to GAIL where you have some bit of pricing in terms of sourcing on nine months [GTP] as offtake even three months [GTP] Another contract with GAIL where Henry Brent LNG pricing. So is there anything like that in your case? And what explains very high marketing trading margin in this quarter?

We do have term contracts, let say, for example, in fertilizer, we have term contract with our own brent, on a three months pricing basis. Same is the case with CGD, most of the power consumers are on a [indiscernible]. As far as sourcing is concerned, it's a mix of Brent and Henry Hub. Obviously, in CGD, we have this APM gas as well.

Any margin we can share, per unit margin for LNG as well as for domestic gas on the trading side?

For domestic gas, which is -- basically, HP gas, margins as fixed. Same the case in fertilizer, where can't add more, we can charge only fixed, marketing margin is close to 27. In other segments, industrial and all, the market margin depends only on the market at this point of time.

Okay. Sir, why was the margin so high in this quarter? Because I think fertilizer and CGD will be largely trading nominal margin, so what is the upside coming from?

I think we have sourced the gas at an appropriate time with respect to the margins which we have and we had long-term agreements which were there linked on Brent. Basically, you have a brent which comes in on an aging basis. So based on that, basically, we had a slight advantage with respect to the product which we are offering to the market.

Sir, next quarter, is there a chance for reversal of some of these gains when the prices when your nine months, three month spread, it gets reversed. Is there a chance of second quarter trading gains, some of it getting reversed?

There is no reversal. You mean to say negative numbers?

Yes, negative.

No, there will not be any negative numbers. I think we stick to our guidance last time we gave around INR 1,100 crores of profit from the gas trading business. That still remains.

Despite the very strong first quarter, you are still...

Yes, on a conservative basis, we are giving at 10. We stick to the earlier guidance which you have given.

Sir, lastly, with the upcoming new LNG contract from Uniper, Qatar even Total, will you have lower proportion of spot volume on the trading side? And will that impact your trading business margin? Because from what I understand, spot you can earn more margin. And when you have a longer-term fixed contract, you will probably have a more back-to-back contract.

Generally, we try and sell the long-term contract that we sign on a back-to-back basis. Similarly, on the Henry Hub side, we have contracted some of the volumes on back to back basis. We don't keep all the volumes exposed. We do sign contracts whenever we do a long-term contract. But yes, it is expected to improve the profitability and we will also be able to expand the business with the long-term volume.

Will this also help the CGD business in terms of lower proportion of spot and then you have higher contract LNG, which is much cheaper and more stable price.

Absolutely.

The next question comes from the line of Yogesh Patil with Dolat Capital Markets.

Question related to gas sourcing breakup for CGD business, that would be helpful. If you could provide the mmscmd in terms of what was APM and WG exchange for gas?

I think we told that 12.44 mmscmd was the volumes which we did in the CGD segment. Of that close to 14% was APM and 6% was the new well gas and GAIL coal gas was close to 2 percentage and long-term contract we had close to 9 percentage and rest close to 69% was on a short-term or inter-segment scale basis.

The next question comes from the line of Ajay Sharma, an individual investor.

I want to ask on the gas trading, right, in terms of rupees per scm, is there a margin target, right? I noted that it is INR 6 per scm in first quarter last year was INR 3.5 per scm, and you gave some numbers for fertilizer and CGD. Just quantify how much is the number in terms of per scm for fertilizer, CGD and for other categories which you target?

I think what we have told as a guidance earlier also, basically, we make a margin of close to 4% to 5% in the gas trading business. Yes, there will be exceptional quarters, which would be there, but we stick to that guidance again.

It cost per scm, you gave is the percent margin target?

Yes, it's a percentage margin we target, overall on a basis.

The next question comes from the line of Nitin Tiwari with PhillipCapital India.

I just had a clarificatory question on CNG sales. Sir, is there any element of other than -- I mean after amalgamation, I suppose Sabarmati Gas volumes would also be included in this statement? Is that the right understanding? Or correct me if I'm wrong over there?

No, it's a wrong understanding. It's a joint venture. The profit is taken on a line-by-line basis.

Just volume of 3.76 is a only erstwhile Gujarat Gas CNG volume, is it?

Yes, you're right, here.

Secondly, sir, on the industrial phase, I mean, you are -- other than Morbi industrial phase, that to continue on a [indiscernible] even in this [indiscernible] you've managed only about [indiscernible], so what is the roadmap going this segment if you can let us know, throw some light on that. Also, any measures we are taking in other areas, other geographies consumers, [indiscernible].

Currently, we are doing more than -- approximately 2 mmscmd, 2.2 mmscmd other than Morbi, but we have certain promising regions like NH, Ahmedabad rural, Dahej, Kutch and Thane, we expect much more volume. As we expect LNG prices to become stable maybe in a year from now, we expect these volumes to be at least 3 mmscmd by 1.5 years to two years from now.

You mentioned 3 mmscmd in 1.5 years to two years?

Yes.

The next question comes from the line of Probal Sen with ICICI Securities.

Again, coming back to the question that Nitin asked earlier, the development of Ahmedabad rural, Thane, Kutch, Dahej etc., has been ongoing for a while now. But just wanted to understand, is pricing the only constraint that we have been facing since volumes in these regions haven't really shown that much traction for the past, let's say, two years, three years where we look at industrial sales other than Morbi, they broadly stayed in a fairly narrow range for a period of time. So what the LNG price would actually incentivize people to convert? If you can give us a sense of what is holding is back and is there any other reason why volumes have not picked up in these region?

See, while we are discussing on the non-Morbi areas, the main reason is not only price, we are in the process of developing the infrastructure also. In Ahmedabad rural, Thane, etc., our pipeline network is in advanced stages, and we are reaching the industrial areas. So that is -- we will be connecting the new industrial units and then the volumes will start increasing. Just to share that in the non-Morbi section, we have added almost 86 new industries in the past -- from April to June. This will result in handy growth in the volumes from these areas. So it is not only the pricing differential, which is the constraint, it is the infrastructure which we are developing. That is why we are saying that gradually, it will start resulting in the volumes.

That is useful. If I can ask a small follow-up. Similar to Morbi where, let's say, propane is the main alternate fuel, can we get a sense of what are the key alternate industrial fuels that we are competing with in some of these new regions?

See, there are multiple alternate fuels like Steamhouse is there in the Ankleshwar in South Gujarat area, then briquettes and solid fuels are there in other regions. So we are -- I mean, having -- facing completions from all these alternate fuels, but definitely, we'll try to market and get customers on board for a long-term basis on NG.

The second question I had, sir, if I may, is there any regulatory push that we are seeing or advocating for more mandatory usage of gas, whether it's industrial or commercial units or basically for the CNG segment in the Gujarat region over the next, let's say, year or two year because that is something that can probably drive much stronger growth. So just your outlook on that.

Right now, the mandatory push is more on the domestic segment, domestic as well as the commercial, but not on the industrial. Industrial, it is open competition is there from alternate fuels. Propane is coming, so customers have a choice to switch to propane. But yes, in the domestic segment, the mandate is there from the government to switch from LPG to domestic and also in the commercial segment, but not in industry.

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

I had a follow-up on the question around sourcing for gas. I think if you look at for the last three years to five years, we have gone through three shocks now. I think we have heard for a couple of times in terms of the management looking to source long-term gas, but it's been a bit of a struggle there. Is it the bottleneck of confidence on demand that's keeping you away on long-term sourcing of gas? Now that you have become an integrated energy company, you can now really go forward and be more aggressive in signing long-term supply of gas. What's kind of keeping it a bit of a back burner in terms of sourcing long-term supply?

It's not because of no confidence in demand. It is basically whenever -- and you talked about the three shocks that we have witnessed, starting with the Russia thing and then now this Middle East. So whenever we -- so we have signed a few contracts. You must be aware that we have signed with [Potdar], we have signed with Uniper, we have signed with Qatar. And we are already in the market for two more contracts. So it's only that whenever we -- because of the shocks, the time line for reasonable price gas keeps on shifting. So earlier we begin the new wave of LNG supply to hit the market was '26 or '27 maybe. But now because of this Iran thing which has happened, it has slightly shifted. So right now, what we are trying to do is to source our gas starting 2028. And we are in the market for sourcing these additional volumes. It's not because of the demand issue that we are not sourcing at and nor it was because we are a separate company. Obviously, having one company gives us much more confidence. That's true. But we are in the market for sourcing new additional volumes on long-term basis.

Sir, is it what percentage of your volumes maybe in a couple of years, you think will be now on long-term sourcing X, because APM is obviously coming down. But if you can give us a bit of a sense of what percentage of your volumes would kind of come in, which will be on long-term supply versus spot?

So basically, as of today, around 28 would be like 2 million tons on top of 2 million ton LNG equivalent on term contract basis. We expect to do close to at least 4 million tons in 2030.

The final question I had was on the power business. Can you give us a bit more details around the power business and how the PLFs have been? What is your kind of pace at which you think power PLFs would kind of come for you going forward?

I think the PLFs have been lower because of the -- because these are all gas-based power plants. Practically, they have been operating at close to 1 percentage for both the plants. For the last quarter, if you look at GSEG, the 51 megawatts was around 6 percentage and for Pipavav, it close to 1 percentage. So basically, only thing is when there is a shortage of electricity, especially in the summers, basically, there is a peak demand, which comes from the gas-based power plants. Other than that, basically, we don't have much of utilization or the PLF coming up from there. Yes, we are working on the strategy on how to revive it or how to do certain things. We'll be coming back to the investors maybe in a few months down the line of how -- what strategy we are using is basically done it around.

A lot of other power companies are basically tying it back of the meter deals in terms of supplying power to data centers. Is that something that's on the thinking process as well?