Gujarat Energy Limited (GUJGASLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Gujarat Gas Limited Q1 FY 2023/'24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to the coordinator, Mr. Nitesh Vaghela from Anurag Services LLP. Thank you, and over to you, sir.

Thank you. Good afternoon, and welcome to the Q1 '23-'24 Earnings Conference Call of Gujarat Gas Limited. From Gujarat Gas management, we have Mr. Nitesh Bhandari, Chief Financial Officer; and Mr. Sandeep Dave, Company Secretary. We will begin the call with opening remarks from the management, post which we will have a question-and-answer session. Thank you, and over to you, Mr. Sandeep Dave.

Good afternoon, ladies and gentlemen. I am Sandeep Dave, Company Secretary of Gujarat Gas. A very warm welcome to this earnings call of Gujarat Gas. And to start with, thank you for taking out time and attending the call. Today, the buzz word in the market is credit rating. We have seen a lot of volatility in the market in recent times due to use of credit rating revision. In this background, I am happy to inform that GGL has secured the highest possible credit rating of AAA from AA positive outlook. Just to give a brief background on Gujarat Gas. Gujarat Gas is the largest city gas distribution company in India, with gas sales volume of 9.22 mmscmd that is million metric standard cubic meter per day. The company has 27 geographical areas spread across 6 states and 1 union territory. We have a good mix of mature and emerging CGD areas. We have developed pipeline network of around 36,000 kilometers, which provide natural gas to more than 19,30,000 households, 4,300 industrial customers and 14,000 commercial customers. GGL operates more than 800 CNG stations, serving approximately 3,75,000 vehicles per day. GGL aims to deliver affordable, reliable and cleaner energy by operating responsibly and performing with excellence while considering the environmental, social and governance factors. As a part of our commitment to ESG initiatives, we have taken various measures. We have successfully completed a pilot project on hydrogen blending with NTPC, and we are planning to increase the hydrogen concentration level. We have also undertaken a maximum digitation drive internally. We have also provided gas supply to replace polluting fuels and scarce natural resources. At Gujarat Gas, we adhere to highest standards of safety and strong culture of safety. There is prerequisite of building a safe and reliable CG network in our areas of operation. There is 0 fatality or lost time injury to GGL employees. GGL is an ISO certified organization for its integrated QHSE safety management system. Now I request Mr. Nitesh Bhandari, CFO, to take us through details of financial performance.

Good evening, ladies and gentlemen. I am Nitesh Bhandari, CFO at Gujarat Gas. Trust, all of you would have gone through our financial results, which were reported yesterday. To start with on the business side, we have achieved 10% growth in industrial volumes per day and a 4% overall growth in the current quarter, that is Q1 FY '23/'24 despite the impact of Biparjoy Cyclone. Sales volumes have increased from 8.86 mmscmd in Q4 FY '22/'23 to 9.22 mmscmd in the current quarter, which is FY -- Q1 FY '23/'24. Industrial volumes have increased to 5.36 mmscmd to 5.88 mmscmd. Morbi volumes have increased to 4.01 mmscmd. In line with our stated strategy, we continue to balance volumes and margins. This quarter, we had an opportunity of increasing volumes due to much softer RLNG compared to the levels that we saw in 2022. Higher propane levels from March 2023 gave us room to push volumes in Morbi. So with the softening of spot LNG gas prices and availability of cheaper domestic sources of gas, we have adjusted our selling prices to retain and regain customers at Morbi and other industrial customers, albeit with a temporary reduction in margins. We have set up -- we have achieved highest ever CNG volumes of an average of 2.61 mmscmd in the first quarter of 2023/'24. This is on the back of investments that we made in the CNG station infrastructure, which has now grown from 400 CNG stations to 800 CNG stations in the past 3 years. This has not only increased accessibility of CNG to customers, but has also improved the experience in terms of reduction in waiting time. With the increase in company fitted CNG models, some of them even changing designed to increase stroke, retain boot space, reduction in diesel variants and higher competitiveness to alternate fuels, the CNG sales are expected to grow in times to come. We have made significant progress in putting CNG infrastructure in the new GAs as well. We have commissioned around 169 CNG stations in the 6 new GAs of bid around 10 in the various states of MP, Rajasthan, Punjab and Haryana. An important milestone, we have crossed 1 lakh kgs of CNG sales in Palghar and Thane rural GA. There was a growth of 12% in SCV category of 3-wheeler commercial vehicles and passenger car segment. The CNG vehicles have grown by 3% as compared to last quarter. This quarter, we have been able to connect more than 46,000 domestic customers, which is around 33% higher than the previous year same period. CGD industry has received a good and much needed support from central government in terms of implementation of the recommendations of Kirit Parikh committee in terms of domestic natural gas pricing. As per the changed guidelines, domestic natural gas shall be 10% of the Indian crude market price. The APM price shall have an initial floor and ceiling of $4 per MMBtu and $6.5 per MMBtu, respectively. The ceiling will be maintained for the next 2 years, and then increased by $0.25 each year. APM thereby, cost has reduced from $8.5 per MMBtu to $6.5 per MMBtu, increasing the competitiveness of the same vis-a-vis alternate fuels. GGL has promptly passed on the benefit of this reduction to its customers. So post implementation of revised APM pricing, savings to CNG customers over alternate fuels have increased to 45% and to 50%. It is pertinent here to note that the government of Gujarat had also reduced VAT on CNG and domestic PNG from 15% to 5% in October 2022. So this reduction in APM price, coupled with the lower VAT, is expected to give strong growth momentum through conversions both in domestic and CNG sector. On the industrial front, center government from first of July has increased the customs duty on propane and LPG, increased from effectively 2.75% to 19.25%, which has helped us or provided a much needed level playing field to gas. It has increased competitiveness of natural gas compared to propane and LPG. Our company has reported revenue from operations of INR 3,924 crores in the current quarter of financial year '23/'24. This reduction, compared to the previous quarter of previous financial year, first quarter of previous financial year, was mostly on account of reduction in selling price. Approximately 84% can be attributed to reduction in selling price and the balance around 16-odd percent is on account of reduction in volumes. This was also a challenging quarter from the perspective of profits, as we had to reduce industrial selling prices to compete with lower alternate fuels, mainly propane in the Morbi area. The company reported a PAT of INR 215 crores compared to INR 381 crores that we did in the previous year same quarter. Company's EBITDA was at INR 397 crores and the per SCM EBITDA was INR 4.73 per SCM. We endeavor to retain or maintain our EBITDA in the range amount of around INR 4.5 to INR 5.5 per SCM on a long-term basis. And we continue our endeavor to strike balance between volumes and margins. EBITDA in percentage terms was 10.6% in Q1 compared to 11.9% in the Q1 of previous year. Our sales mix now has tilted towards CNG and PNG, with the increase in CNG sales. So CNG, PNG domestic now account for 35% of company's total sales vis-a-vis 31% in the Q1 of the previous year. Board of GGL has approved an investment of INR 100 crores in GSPC LNG Limited. The acquisition aims to have better synergy and integration in the gas value chain. GSP LNG Limited is engaged in the business of LNG receiving, storage and regasification at Mundra, in Kutch, Gujarat, having a capacity of 5 MMTPA. GSPC LNG's commercial operations have started in March 2020. GGL currently sources around 4 to 4.5 mmscmd of imported RLNG to serve its customers, which is roughly around 20% to 30% of the current capacity of this GSPC LNG Limited. Mundra LNG terminal can be used to supply RLNG to the nearby regions, including Morbi industrial cluster having significant natural gas demand. This will also help us optimize on the gas transportation cost, with the unified tariff now having zonal tariffs. Government has set up a target to raise the share of natural gas in the energy mix to 15% by 2030, which means a 2.5x increase from the current levels, leading to an increased reliance on imported LNG, and thereby LNG terminals. U.S. and other developed economies are increasing liquification capacities and they're increasing their exports of gas, wherein having an LNG terminal would be an advantage. During Q1, GGL credit rating was upgraded to AAA, the highest credit rating level, from AA positive, by India rating and CARE rating. CRISIL has already upgraded the credit rating to AAA in December 2022. With this, all agencies have rated Gujarat Gas with the highest credit rating. We continue to be a zero-debt company. For Ahmedabad Rural GA, PNGRB has extended both the marketing and infrastructure exclusivity. Time line to achieve the MWP target has been extended from June 2023 to March 2027. We now continue to aggressively invest into CGD infrastructure to tap this lucrative market, both in terms of CNG and PNG, domestic, commercial and industrial demand. Thank you. And with this, I now open up for the Q&A session.

[Operator Instructions] First question is from the line of Probal Sen from ICICI Securities.

Just had a couple of questions. First, if you can give a sense going from Q2 onwards, what is the kind of volumes that you're seeing from Morbi at the moment? And if you can get a sense of what is the sort of total gas equivalent demand today at Morbi, even if you have a rough idea? And what portion of that sort of has the ability to switch between propane and gas, if you can give us any sense on that?

So Probal, to respond to your first question, the gas volumes at Morbi currently are in the range of 4 mmscmd. Propane is around 30 lakhs SCMD currently.

And sir, is my understanding correct that typically at full capacity if everything is going well, the overall gas equivalent demand can be as high as around 8, 8.5 mmscmd? I'm talking total including gas and propane. Is that a fair assessment?

It's a fair assessment. 8, 8.5 is the universe.

And within that around 50% has the ability to switch back and forth between us and propane, roughly around. Is that a fair assessment?

Roughly, yes.

The second question, sir, this is a slightly broader question. I understand the basic point about the acquisition that has been done. But forgive me for asking, this synergy in terms of transporting or sourcing volumes from this terminal to Morbi, could it have been done even without the acquisition since the terminal is also sort of -- part of the GSPC Group also has a space or is proposed to have in this terminal. I'm just trying to understand what the requirement was for taking an equity expense? How does it help us more than what it would have normally?

So Probal, we are getting a part of our volumes that we serve to Morbi from Mundra even today. And we -- so we do have that volume that we are offtaking via GSPL transportation pipelines, which are coming from Mundra. The idea of investing into or putting a stake into Mundra was that we also -- it was a strategic decision to invest into terminals from a long-term perspective, wherein the growth in gas economy -- gas as a percentage of energy basket is expected to increase. And the LNG terminals will have to come in if we are looking at 2, 2.5 times fold increase in the share of natural gas energy. So it is not only about storage, but it's also about loading and distribution. So this Mundra terminal is not only -- so one is it may help us in storage. And second is it will also help us in loading facilities. So a long-haul vehicle on LNG is now the new thing or the new demand that is coming up. And then we'll be able to cater and serve through this Mundra LNG. Also, more efficiently for the Saurashtra part or Saurashtra region.

All right. And sir, last question, if I may. Just a couple of housekeeping questions. If you can kindly give us some CapEx guidance for this year. And if you can split it into your existing or rather older areas and new areas, that would be very helpful.

Sorry, can you please repeat. Sorry, I missed you, Probal.

No worries. I was asking that if you can give us some guidance on CapEx planned for FY '24 and '25, and if you can split it between new areas and the existing areas, some guidance on that?

So in terms of CapEx, we will be in the range of INR 1,000 crores to INR 1,200 crores for the next 3 years. And in our -- and all of the -- I mean, we will have them funded through internal or cash accruals. So all of them except, let's say, for a small point, when we were trying to advance our CapEx for some specific demand pockets where you might need bridge loans, most of it will be through internal accruals. This should be split almost equally into 3 parts, the new GAs, the existing GAs and CNG.

Next question is from the line of Maulik Patel from Equirus Securities.

I really appreciate that the management took the initiative to host the call. We request the management to have this kind of call post every quarter so we can get an update about the business. I have two questions, one is on the change in strategies, so last year, we were more focused on margin expansion, the profitability and this year as you said in your opening remarks, it is that we want to go for volume. In that case, I mean, will you be able to hold your earlier guidance, which you go on the margin side, I think you will be able to make around INR 5 plus or minus INR 0.50 given that priority is now on the volume.

So Maulik, to answer your questions, we continue to balance between volumes and margins. As I mentioned in the opening remarks, this quarter, we had a benefit of cheaper or softer LNG, which we could blend and sell to our customers, and the propane levels were also decent. Here, I must also mention that we -- summers are the time when the propane levels are the lowest. So we have gone through the -- I mean the worst part of the propane mix for the year. And from winter onwards it is anyways looking at an upward trajectory. In terms of propane -- in terms of the margins versus -- so propane is increasing, as you can see from the forwards for September as well and beyond that. And in terms of the other part, which is about EBITDA, we cut -- I mean, even in this quarter, we have a fair EBITDA of INR 4.73 per SCM. So we are still within the band that we are -- that we have been talking about. And we continue to focus on volumes also because having volumes also provides you the flexibility to source spot gas, which is currently cheaper. So we can source cheaper spot and blend it to reduce our weighted average cost of gas. Hope that answers.

Sure. Can you just give us what kind of -- so you have done on a priority segment volume, which is CNG and household? It was close to around 3.2. And in that how much of the APM you received or how much of this product you have mixed for this priority segment volume?

So in terms of the sourcing, around 32% of sourcing is the APM gas. And within Dom CNG, the total Dom CNG volume was 3.22 mmscmd versus 3 mmscmd that we did in the previous year, same quarter. In terms of the APM shortfall, APM shortfall was in the range of around 10-odd percent, which, we taking it through HPHT gas and some blending it whenever the spot or cheaper spot was available for 10% shortfall.

Sir, the Line for the participant dropped. Requesting all the participants to please restrict to 2 questions per participant as we have a long queue. [Operator Instructions] Next question is from the line of [ Manthan Mahender ], individual investor.

Am I audible?

You are Manthan. Please go ahead.

Yes. Okay. So I have 2 questions. So one is, what is company's long-term strategy to compete propane competition in Morbi region? And second is company's plan to expand more customers in industrial segment? I mean I see in press release, this quarter we have 0.11 mmscmd volume from new customers and 0.43 yet to be commissioned. So that 0.43 will that reflect from quarter 3? And overall plan to add more clusters like Morbi?

So [ Manthan ], to answer your question. I mean, first is that as we mentioned in the previous question or our response to the previous question, propane is sort of as of now, looking at an upward trajectory, and that should help us in terms of pushing volumes and at the same time, looking at some fair margins on the Industrial segment. In terms of the industrial segments and getting into new areas, we are looking at major 2 new areas are Thane, which is the Vasai-Virar area, Thane rural areas, including Palghar and at the Ahmedabad rural, which is the newly acquired area. So we put in -- we are aggressively putting in infrastructure to reach to the various industrial demand pockets. As we speak now, our commercial and marketing team is in Rajasthan to push for industrial volumes at Rajasthan in our newly acquired areas of Sirohi, Jalore and also at Dungarpur.

Next question is from the line of Moksha Shah from YellowJersey Investments.

My question was, could you please throw some light on how do you foresee the industrial demand? And how are the prices between propane gas and the prices you offer expect to go forward?

So Moksha, Industrial, as we have been mentioning, with winter coming in, summers is the time when propane is slightly cheaper. And with winter coming in, they are expected to be having an upward trajectory, which is reflected in the forwards of propane as well. We will continue to see if we can blend cheaper spot if available and place it profitably to our industrial customers. In terms of -- and we continue to push for volumes not only in terms of Morbi, but in other areas, as we were discussing and mentioning. In other areas, specific two or three being the Thane rural area, which is Vasai-Virar and Palghar area, the Ahmedabad rural area and also in new areas in Jalore and Sirohi in Rajasthan.

Next question is from the line of Rajesh Aynor from ITI Limited.

Sir, my question is continuing on one previous question that was asked about sourcing. How much is our spot gas sourcing in Q1? And what's the outlook going forward in terms of how much is the available supply from PMT and other term contracts that is there with us, apart from APM?

So okay, we talked about the sourcing when it comes to domestic and CNG. So we got around 90% APM gas and the 10% balance was the shortfall, which we sourced through a mix of HPHT and spot. But in terms of -- and the next part is about industrial and commercial. We are in industrial commercial. We source around -- so in terms of the sourcing mix, around 32% is the APM and around 20% is non-APM domestic this is for the Q1 and 34% was the long-term RLNG and around 14% was the short-term RLNG.

And what was the price at the short term, this is the spot volume or is it the short-term RLNG?

The spot was in the range of around $12 to $13 per MMBtu.

And currently, what is the price at which we are sourcing, let's say, in Q2. What's the environment like for next two quarters, what's the outlook?

So as of now, we should be getting gas at around -- cheaper to that, so around $10.5 to $11 per MMBtu. This should possibly go up in winters or this might go up in winter, we will have to see or wait and watch.

And sir, one clarification, CapEx plan was INR 1,000 crores. That's a cumulative plan for next year? So it's like per year INR 1,000 crores you will be spending?

So INR 1,000 crores to INR 1,200 crores per annum is the plan for the next 3 years.

Okay. And you are saying 1/3 of that, that means INR 300 crores to INR 400 crores we are planning to spend on the LNG infrastructure side. Is that -- did I hear it right?

No, no. That -- I was mentioning that 1/3 would be the CNG part, the CNG infrastructure, including setting up pipelines for connecting the CNG stations, the spur pipeline.

Okay. And any more investment on the LNG projects, et cetera, that we are envisaging?

Nothing immediately on the table, Rajesh?

Next question is from the line of Sabri Hazarika from Emkay Global.

So I have 3 questions. The first is basically, this Mundra LNG terminal. So now, has the equity structure been fully finalized or it is still at, say, 55%, 60% only, which has been finalized, including your stake?

So as of now, we are almost -- what we understand is we are almost at the fag end in terms of the equity investment. We need a total equity of around INR 1,300-odd crores and out of which post the investment, this should take care of around INR 1,200 crores, so INR 1,200 crores to INR 1,250 crores. So after this investment, Gujarat Gas will hold around 7.87% of equity in the Mundra LNG terminal.

Right. And who are the other partners?

The other partners, major one is government of Gujarat and GMB, Gujarat Maritime Board.

Okay. Because GMB is probably a related party, but it is not mentioned in the press release. So I was just wondering, GMB will be having again like around 30%, 40% stake, right, in the terminal?

Yes. But GMB does not -- is not our related party.

Okay. Okay. I got it, yes. Yes, probably not directly connected. Okay, sir. Second question is related to your industrial PNG versus propane pricing. So what was -- what is the pricing in July, in August currently, I think it has got already the import duty impact has been, I think, factored in. But what would be the pricing of -- in an SCM basis, what is the pricing now? And what will it become in September?

So industrial pricing is currently at Morbi at around INR 38 to INR 38.5 for the month of -- for the current month.

Okay. And propane will be how much?

And propane would be around INR 35, INR 34 to INR 35.

Okay. We will basically -- this includes the import duty, right?

Yes. The import duty is effective from first of July.

First of July. Okay, fine. And next month, it will go up further because my propane itself has gone to $470 per metric tonne.

Yes. Very much from the first -- from September forward. Yes, I agree.

A small question, what is the CapEx in Q1?

Sorry, we lost you. Can you please repeat?

CapEx in Q1?

The CapEx in Q1 was around INR 200 crores to INR 250 crores.

Next question is from the line of S Ramesh from Nirmal Bang.

So the first part is based on the current pricing and the traction you are seeing in terms of the industrial PNG Morbi, what is the kind of growth we can expect in industrial PNG Morbi say over the next 9 months based on the current differential you have. And if the differential comes down to parity between PNG and propane, what is the kind of increase in volumes you can deliver in the second half?

So if you see, as we were discussing, the total universe at the next -- in terms of the total capacity of Morbi is around 8, 8.5 mmscmd. That is the total universe. As of now, it's around -- the volume that is being picked up is around 7, 7.5 mmscmd, out of which 4 mmscmd is what Gujarat Gas is doing, and the balance -- and around 3 mmscmd is being served by propane. I'm talking of NG equivalent. If the propane goes up or NG comes down, we can look at pushing or taking the share of propane out here and shifting and that share of propane shifting to natural gas.

So at the peak, can we take it that you can go up to your normal Morbi volume of, say, 6, 6.5 out of that 8.5, say over the next 1 year? Is that possible, assuming the pricing works in your favor?

It seems to be possible and realistic at this point of time. However, we will have to see how the commodity markets actually move and both the spot prices and the propane price. But as of now, it seems to be realistic.

Yes. Just 2 more thoughts. One is can you give us the volumes you are doing in the new GA in CNG and PNG? How do you see that growing in the rest of the year and over the FY '25/'26?

So in terms of the total volumes that we're doing in the new areas where I will, around 0.5 million to around 0.5, 0.6 mmscmd. And that can grow up to around 1 mmscmd by the end of 2025.

And how much of this will be CNG and how much will be PNG?

These are primarily CNG focused markets, so most of it will be CNG. A small part of it will be PNG as well. So with that, the mix of Gujarat Gas will also tilt towards CNG.

Okay. Okay. So just one last thought on the CapEx. You said part of it is new GA, part of it is existing GA, part of it is CNG. So can you just elaborate on that because we don't understand. So the new GA thing, do you still need to invest in CNG. So if you can just explain that it will be useful.

Yes. So what I was mentioning is that when we look at total CapEx of around INR 1,000 crores to INR 1,200 crores, it will keep changing on a year-on-year basis in terms of the requirements of the backbone infrastructure in various GAs. So in the new GAs, let me mention that in most of the new GAs, we have put up the backbone infrastructure, but the steel pipelines need to further go up and then followed by the plastic branches. So here, what we are saying is that we -- over a period of next 3 years, when you look at our CapEx, a decent share of that will go into new GA, which is around 1/3, and CNG, when I say CNG, I'm saying that CNG for both the existing GAs as well as the new GAs. And what I would also like to add over here is that the balance will also go into existing GAs because in our area in the CGD operations, the city keeps expanding. So we get into newer areas and newer geographies. I mean the city keeps expanding and then we get newer pockets of demand. As we know, Gujarat has been a destination where various industries have been coming and setting up shops, and we need to sort of make sure that we are able to put in infrastructure to quickly connect them and monetize through our gas volumes.

[Operator Instructions] Next question is from the line of Nitin Sharma from MC Pro Research.

I just wanted to understand how big opportunity could be in the Rajasthan GA and the Thane, Vasai-Virar GAs in terms of volume?

So Thane we already are selling 1 lakh kgs of gas per day. So that's a sizable market already for us when it comes to CNG. In terms of the industrial market also, Thane has a decent bit of industrial market of almost around more than 0.5 mmscmd, 0.5 to 0.6 mmscmd we are already flowing gas in Thane rural GA. In terms of Ahmedabad rural GA also, as we know, Ahmedabad rural GA comprises of various talukas, where in -- which are also pockets for industrial clusters, like Changodar, Bavla, Sanand, there are various industries that are already there and new industries coming up. Dholera also is a part of Ahmedabad rural GA. So we do expect that these volumes will come up. In terms of Rajasthan, Rajasthan, the Jalore, Sirohi market will primarily be for the CNG and domestic part but it also includes Abu Road. So, there'll be a good amount of commercial cluster also, which will be tapped by us as we go through. And there are long highways at -- which are connecting on both sides via Udaipur and via this -- Pali towards Delhi. So, those areas are also something that -- so that will also help us cater to not only this -- the routine CNG but also as and when the DMIC comes up, the Delhi Mumbai Corridor, or the highway comes up, that point of time we will also be able to tap the LNG potential via long haul vehicles. So, this long-haul vehicles on LNG can run at almost 800 to 1000 kilometers for 1 filling. We also expect some rolling mills to come up in the areas of Rajasthan which we will be tapping as we progress our pipelines and infrastructure to those areas.

So, by when the Rajasthan GA goes live or is it already...

Yes, they are already, they are already commissioned and are live. And in terms of -- in terms of volumes, we have started selling around 30,000 scmd in Jalore Sirohi already in terms of domestic and CNG, primarily CNG.

Next question is from the line of Umesh from Reliance Nippon.

Just need to understand, in September ARAMCO has already increased the propane prices to $470 per tonne. So, does it mean that the propane prices which is currently at [ 35, 36 ] will become again [ 41 ], then in that case, the gap would be narrow and there is a probability that there is a scope for you to increase the prices from September onwards, which gives the visibility of better volume growth as well as better EBITDA per SCM as well?

You are right, Umesh. That's what our thought as well is.

But, in August there was article that today the price has been cut by INR 4 per SCM, right?

Right.

So, as of now the difference between, the gap between your offer, offering of gas and the propane, it seems to be around INR 2.5 per SCM. So, again, is there any volume divergence that you will see or there is no scope as of now?

So, there would be slight diversion but as you were mentioning there are, you know statements and mentioned by the ceramic association itself, that natural gas is not only about affordability but it's also about convenience. So these -- natural gas is available at the tap of -- at the opening of the tap itself. And so, some premium, they are willing to pay for the convenience part as well. And having said that, some volumes may shift but then again, the Morbi customers are also aware that propane is on an upward trajectory from September. So, it will be like about whether they really want to switch in and switch out so quickly. And that also entails the cost as well as time.

Okay. And second, this was -- what percentage of as of now Morbi users switched to usage of gas? And do you see the volume may touch to 5 mmscmd in quarter 3 and quarter 4, because the other tiles -- tile player has clearly indicated that this year again Morbi cluster would see bumper exports of around 20% higher than last year. So, do you see the scope of total volume from Morbi to touch more than 5 mmscmd from current 4 mmscmd in the second half?

Fingers crossed, we would want and we want that to happen and it seems quite likely that we should be able to touch that volumes, especially because of the 2 -- twin factors of propane on an upward trajectory and softer LNG, also combined with the convenience part. So, we do expect that we should be able to touch levels of 5 mmscmd and possibly grow and go beyond that with a decent or modest expansion in margins as well.

So because you mentioned that there is a possibility that this quarter, maybe prices in the second half will again go up because of the onset of winter in the European region, right, where always we see the storage has to be -- or the storage would be on higher side to meet the requirement. So, don't you think, so there will be again the impact that you will see both on the volume side as well as EBITDA per SCM side as well in the second half?

So, as of now that's what it looks like as per the forecast. Having said that, these are commodity markets and internationally linked in terms of prices. So, we will have to see how we go around it and grow around it. But yes, as of now the picture seems to be in favor of natural gas.

[Operator Instructions] Next question is from the line of Kirtan Mehta from the BOB Capital Markets.

You have talked about Morbi as well as the new GAs, could you also sort of give us the current volumes at the other GAs in Gujarat, industrial volumes at other GAs in Gujarat and how do you see its volume growth from here? What is the current pricing also that you are charging for the non-Morbi consumers in Gujarat?

So we are at an average of around 2 mmscmd volumes which are outside Gujarat -- outside Morbi. And the Morbi -- the second question, Morbi we are charging at around, the current price is around INR 38 to INR 38.5 per SCM.

Outside Morbi, what's the price?

Outside Morbi we are charging a bit higher in terms of premium because in terms of -- so that's slightly higher and that's also linked to the alternate fuels that the consumers use outside Morbi.

And is it possible to give some volume guidance on -- for this additional volume of 2 mmscmd, how do you see it growing from here?

So 2 mmscmd, as we discussed, the major markets continue to be Thane, Ahmedabad rural and the areas possibly in Rajasthan and some parts of Punjab. So, we are pushing aggressively in terms of laying infrastructure and to these pockets of demand. Once the infrastructure reaches, then we do expect that we should get some decent volumes out of these areas. Dahej is another industrial area where we have our authorization and so that also give us decent volumes, Dahej and DNH, Dadra Nagar Haveli as well.

And just similar question on the CNG side, could you -- what is the current vehicle base that we are serving and what's the mix of CNG vehicles?

So, you are talking about the CNG, right, the CNG vehicles?

Yes, sir.

Okay. So, in terms of CNG vehicles, we have approximately around 5 lakh or 5 to 6 lakhs vehicles on CNG and these are 4 wheelers, around 2, 2.5 lakh 3 wheelers, around 21,000 to 22,000 buses, sorry, LCV, MCVs and HCVs and buses. So total of around 8.5 lakhs.

And how are we seeing the additions per month or quarter, any indications to the current run rate?

So the current run rate is actually improving vis-a-vis what we had previously and we are looking at an addition of around 30,000 vehicles in the current quarter.

[Operator Instructions] Next question is from the line of Varatharajan from Antique Stock Broking.

The CNG outlet additions, what is the kind of numbers we are looking for the current year, next year and maybe for the following year as well?

So, we have invested in CNG. In terms of the last 3 years, we have doubled our CNG station capacity from 400 CNG stations to 800 CNG stations. This year, we are looking at not adding but augmenting the infrastructure and adding capacity to it. So, we are looking at converting the daughter boosters to online and daughters to daughter boosters. And despite that, we'll be adding around 60 to 70 new CNG stations, most of them in the Ahmedabad rural area, which is the new geographical area that we have got with the Supreme Court award.

Anything for the next year now?

So, next year we should be looking at a similar number in terms of the increase in the CNG stations.

Fair enough. On this Ahmedabad rural, so like what would you look at as a potential, do you look at a market size of 1 mmscmd, 2 mmscmd, 3 mmscmd kind of a potential based on your estimation?

So, in the initial part we are looking at first ramping it to up to around 0.5 mmscmd. But overall, over the next 5 years, yes, we do look at it growing to around 1 mmscmd or possibly beyond that.

Next question is from the line of Gagan Dixit from Elara Capital.

I have the, just the continuance of the question regarding the supply portfolio that you mentioned. So you mentioned that around 10% of your short-term coming from the -- for PNG household from the -- with HPHT gas. And you also mentioned that around 20% of your non-APM domestic gas, you are taking it. So, if I do the math, it means that non-APM domestic gas is around 1.6 mmscmd for the industrial purpose as per I get the math. So, can you tell me sir, broader breakdown of this, what is the source -- sourcing breakdown of this 1.6 mmscmd and also this long-term LNG of 1.9 mmscmd?

So, in terms of Q1 what we were saying is that around -- when we look at APM gas, so there are 2 parts, one is the APM gas we get around -- a shortfall of around 10% and that is sourced through HPHT gas, when it comes to non-APM gas, that's around 20%. The LNG or the term portfolio is at around 48% and the balance 32% is the APM as we discussed.

Yes, so for this non-APM that's mostly this Cairn Rajasthan and this KG field of the Reliance, like that's mostly the breakdown of this?

So, non-APM would be -- basically this is about, one is the Reliance Gas, that's around 0.7 mmscmd and some part of Cairn gas as well [Audio Gap] Vedanta.

Okay. Okay. And long term is the, mostly Qatar and BG Gas.

Very much. Yes.

Okay. Okay. And Qatar is 0.92 mmscmd, if I am not wrong?

Yes.

Yes. And sir my last second question is about the -- this -- your short-term LNG would spike actually if you try to target the full, this Morbi market 8.5, 9 mmscmd, that's the potential. So, do you have any plan actually to long -- to procure more long-term LNG because short term has lots of volatility in the prices, something, that, if you can give some outlook of it?

So, here we are looking at, we keep on evaluating and exploring in terms of the sourcing long term or short-term gas that is available to us. So, while long term gases in terms of LNG we are exploring but the markets and the current -- currently the markets -- our position is that we might get, we need to hold on and possibly look for better deals. In terms of -- but we continue to aggressively look and spot domestic sources as well, which come on auction. So, that is another and we are relatively cheaper. Even the spot LNG as of now is cheaper as we discussed, coming at around $11 to $12 per MMBtu. So, a good healthy mix of long term and short term is what is the most appropriate because we do not want to be saddled with long term contracts too much. At the same time, a healthy mix is always better, because it also allows you the flexibility to blend cheaper spot as and when that spot is cheaper into the basket and reduce your weighted average cost of gas.

Yes. And sir my final question is, just you allow, what is your base volume in the traditional industrial geography of Gujarat Gas, the Surat, Ankleshwar, Bharuch, which is the chemical and textile belt? And how do you see the outlook there on the growth of the gas volume?

So, that's around 1.8 mmscmd in terms of Surat, Ankleshwar and Bharuch. A lot of them have actually moved on to alternate fuels, including the cheaper coal and others, when they -- or furnace oil, the dirtier fuels but at the same time, if and when the NGT does become active, we can expect some part of this volume to come back.

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

Sir, could you please share the details of gas sourcing only for PNG industrial? I mean to say how much was British Gas, Qatar Gas, Reliance Gas, Rajasthan Gas and spot, only for the PNG industrial purposes, can you please give us the breakup?

So Yogesh, as we were discussing, we, sort of -- so we do not sort of decide in terms of whether the gas -- you cannot actually decide whether the gas is for industrial, commercial or for domestic CNG because we blend the spot as well as HPHT into the dom CNG also when there is a shortfall. So, in that way we -- and to answer your question in terms of long term, as we discussed around 1 mmscmd is the Ras Gas and around to 2 mmscmd is the BG LNG.

Okay. And Reliance, 0.7 mmscmd?

Yes, around 0.7 mmscmd. Yes.

And Rajasthan Gas, sir?

So, Rajasthan Gas would be around -- so that's something - it's sort of taken on a need basis as and when we need it. So, it's not something that is, so it's basically flexible.

So, British Gas we are getting only 2 mmscmd, right?

Yes. It's a ballpark number that I'm giving, it is around 2, 2.5 mmscmd.

Okay. And last one, please correct me if I'm wrong, your British gas LNG supply deal will end in 2024. Are you planning to extend it and what will be the new terms and contract agreements for that in terms of pricing, quantity and the period?

So, the contract ends in 2025 and not '24. And in terms of -- we will take the decision nearer to the expiry date because that's how the -- normally the contract extensions happen. So, we will take a call nearer to the term also to decide whether we really want to extend this or we have better options otherwise.

Okay. And the last one, sir, you have mentioned that PNG Industrial prices at Morbi, which is in the range of INR 38.5 per SCM, is it including of a VAT 5% or excluding of a VAT?

It's excluding VAT, these are -- prices are excluding VAT.

And INR 34 per SCM propane prices includes all the taxes, right?

No, no, they are also equivalent. So, the differential is around INR 4.

Next question is from the line of Abhinav Ganeshan from SBI Pension Funds.

Just 1 clarification I wanted is that, we have acquired this -- the stake in this LNG terminal but if I look at it from a price-to-sales basis, it looks at a multiple of around 5.3 to 5.4. So can -- just I felt it was a little bit on the expensive side. So, what is the logic of paying such a high price, just if you can clarify?

So, Abhinav we have bought -- the shares are issued -- will be issued to us at face value of INR 10 each. We are not paying any premium over that.

Fair. Fair. So because we are giving 100 -- we're paying around INR 100 crores and I think the company's turnover right now for last year was around INR 20 crore, right, by what you have disclosed and that's why just curious.

So, I think you missed something, it's around, it's more than INR 200 crores, around INR 250 crores.

Next question is from the line of Vikash from CLSA India.

So, I wanted to check on this Morbi volumes. Correct me if I'm wrong, you said that it's currently 4 mmscmd for gas and 3 mmscmd for propane. Is that correct?

That's correct.

And sir, so you also did kind of indicate that there is a bit of a preference towards gas from these users because of convenience, is there -- is performance also any reason for gas as a better fuel for them or they're indifferent about it, #1? #2 is, how would you kind of build that cost of convenience as your best judgment, what I'm trying to get on to is that, if say, propane price is at [ 35 ] would you say that a 5%, 7% higher gas price is something that will, in the minds of the user, make it equal to propane and they are likely to shift? Is that how once you think about it and what is that number, which is your best guess? I know, this is a relatively newish phenomenon. So, we are also trying to discover that number but still, what would your guess be?

So Vikash, few things, one is that, if you have propane as an alternate fuel, you have to have an entire logistics around it, because they are transported through tankers. Second is that you need to pay for that upfront to the suppliers, oil marketing companies or otherwise. And at times if the delivery does not come on or reach on time there is a risk of -- these are continuous plants, the ceramic plants, so there is a risk to the production as well. And there are challenges in terms of resources to be deployed in terms of manpower. So, we do try and figure out in terms of what would be the additional cost that would be there and that could possibly be the premium and plus some percent, some small number for the convenience part. But as you mentioned, we all need -- we will try and discover that sweet spot together possibly.

But is that -- so, when you talk about the propane prices, is that the delivered price, or is that the price which will, then you will have to add all of this logistics costs to it, the number that you are mentioning right now?

So as of now the delta that we are talking of around INR 3 to INR 4 is, without adding those costs, the logistics and other transportation or manpower cost.

Which in your best guess would be what, INR 1 or INR 2 or it's much more than that?

So, as I said, it's basically something that we will have to see in terms of not only that but the convenience part and we will have to see through experience in terms of what is the possible premium that the Morbi customer or consumer market is ready to, or willing to pay. But it will be different from a customer to customer also because of the real estate and the space required for putting in the propane tanks.

Okay. And you said that currently Morbi potential is about 8, 8.5 mmscmd and 50% of the ability to move to propane, is it that the remaining 50% are also building it, #1, #2 is, even the new capacities which are coming in, are they coming, keeping in mind the flexibility?

So, Vikash to answer your question, 2 things, one is that in terms of 8, 8.5 mmscmd is the total potential, or the total market universe. As of now, the volume that had been drawn both in terms of natural gas, or the alternate fuel are in the range of around 7.5 mmscmd -- 7, 7.5 mmscmd. And the new capabilities, the new capacities that have been coming, or the new factories that are coming up, as previously they were all coming on natural gas, so these -- there are a few factories that are coming up with dual facilities at -- from a greenfield project itself, a few of them.

Okay. And sir just one final thing, how easy is it like for example, if for 2 months, this -- the customers see that gas prices are expected to be more competitive than propane, is it almost a switch on, switch off or that's something which -- what is the impact if they simply move to gas for 2 months and seasonally and then move back to propane or something like that? Are they in -- are most of those customers in a stage to do that kind of an easy switch on, switch off, on a monthly basis at least?

So Vikash what happens is basically that, again as we discuss the cost and the things differ from a customer-to-customer, also as a matter of fact whether he has ready orders that he needs to deliver and also whether the orders are local or export order, which have a penalty attached to it in terms of delivery. So, various factors in terms of switch on and switch off. But as you were mentioning, this switching has a cost attached to it, which includes the cost of production cycle and possibly also about the burner settings. And also deploying and arranging for the necessary logistics and manpower, if he has to move to propane.

Okay. No, I mean propane back to gas, is what my question?

That's easier, it's about opening the tap.

[Operator Instructions] Next follow up question is from the line of Maulik Patel from Equirus Securities.

It's only recently that the difference would probably be gone to around INR 8 or INR 10.

Maulik, sorry to interrupt you. Your audio is not clear.

I will just repeat the question, the difference between the Morbi and non-Morbi is almost around INR 10, earlier it used to be around INR 1.8 and we kept it constant of difference for almost 4, 5 years. And now what kind of, is this sustainable or you will try to go back to the earlier difference of INR 1.8? And if you keep it very high, do you think there is any risk of a loss in a non-Morbi volume?

So, Maulik bhai, this is also about which alternate fuels they are using and also about the propensity to pay by the customers. Also -- it also depends on what share of -- and total cost of production is the energy cost. So those are the things that we keep in mind when we look at this price and also the fact that, we also need to manage volumes by making it attractive to the -- vis-a-vis propane, when it comes to bulk volume of Morbi. So those are the factors that will keep in mind when we look at this pricing strategy. And we will sort of -- we are mindful of the gap that is there and we will possibly look at how do we possibly make it more appropriate looking at the alternate fuels as well.

Sure. Got it. I have just one question on this side. Do you think that in this quarter, which is gone by, you had this -- some high cost inventory of spot cargos which probably you have sourced for the month of March, when the propane prices were very, very high, that was single month, you could not consume that volume and that has hurt in terms of probably higher cost of gas and you were not able to buy the relatively cheaper spot cargos because you already had an relatively high inventory with you, was that the case?

No, that was not the case, March actually we were highest in terms of volumes of Morbi.

Yes, that I know because the propane prices went to almost $700 plus.

Yes, exactly, exactly.

No. But then you probably have sourced some more volume then in anticipation of that but then probably the April onwards the propane gases came down, so the Morbi shifted back to the propane and you probably had some high cost of inventory of the spot LNG with you, which you probably have to use throughout the quarter. And you could not take any benefit of the subsequent lower spot LNG prices, was that the case?

No, that was not the case Maulik bhai. We did have cheaper spot to get -- to serve our customers.

Next question is from the line of Bhaskar Chakraborty from Jefferies India.

Wanted to check if you are seeing propane competition in any industrial area outside of Morbi?

Not currently, except let's say in cases of few individual customers which are high volume customers but otherwise not -- no, not really.

Okay. And in Morbi where you said that 3 mmscmd is on propane, is that the maxed-out capacity of propane in Morbi today or there is more capacity like 4, 4.5 mmscmd whatever?

Yes. See propane is also imported and served through tankers. So, you can import more and serve -- have more tankers, which can actually increase the capacity to serve. So, there is no limitation in terms of that, except for the fact that you should have orders wherein you can import that much capacity of propane.

But isn't propane handling capacity at the factory itself a major bottleneck in terms of who can and cannot take propane and how much?

Well, I don't see that as a bottleneck it's more about, we trying -- we as natural gas should try and be more competitive to propane and that's how you should try and sell the natural gas which is what we are looking at currently and with the upward trajectory of propane, that should help.

Next question is from the line of Amitabh Vatsya from Sadhan.

Sir, my question is with respect to the new acquisition of this company so, is this going to help us reduce our transportation and regasification, liquification cost in future or currently, are we availing that kind of benefits through ownership or without ownership?

So, Amitabh to answer to your question, as I mentioned previously, we are drawing gas, some part of spot gas which is coming through Mundra on through -- via transportation by GSPL pipelines. Having said that, there would be loading facilities also at the Mundra terminal and we can use that loading facilities and to use the LNG transportation to serve other segments, not only Morbi, like other segments which have a fleet of vehicles, be it dairy segment, be it cement segment, where they have a fleet of vehicles which can be converted to LNG and also use that for long haul vehicles which, as we discussed, we can have vehicles which can run almost 800 to 1000 kilometers at 1 filling of LNG. So that is something that will be possible with this loading facility that is available at the Mundra LNG.

Ladies and gentlemen, we will take that as the last question. I now hand the conference over to Mr. Nitesh Bhandari for closing comments.

So ladies and gentlemen, thank you for your patient hearing on the first ever earning calls of Gujarat Gas. In terms of a few points, I thought we should though leave you with. One is basically that, as Gujarat Gas, we continue to balance between volumes and margins. That's a strategy we have been adopting for quite some time. It's been more than 3 decades that we have been successfully implementing and growing through this strategy. Propane forwards are on an upward trajectory, that should help us in the months to come. And CAPEX that we are investing in new areas and CNG as we discussed has started yielding results. Both these above factors should lead into robust and diversified growth in terms of volumes and as well as margins. The CAPEX for the next 3 years of INR 1000 to 1200 crores per annum is primarily funded through cash accruals. That's the best position for any business to be in where the existing business is funding the investment into new business. Thank you ladies and gentlemen, thank you for your patient hearing.

Thank you very much. On behalf of Gujarat Gas Limited that concludes this conference. Thank you for joining us, you may now disconnect your lines. Thank you.