Indraprastha Gas Limited (IGL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indraprastha Gas Limited Q2 FY '26 Earnings Conference Call hosted by DAM Capital. [Operator Instructions] I now hand the conference over to Mr. Kishan Mundhra from DAM Capital. Thank you, and over to you, sir.

Thank you, Idha. Good day, ladies and gentlemen. On behalf of DAM Capital, I welcome all of you to Indraprastha Gas Limited Second Quarter FY 2026 Earnings Call. Today from the management team of IGL, we have the pleasure of having with us Mr. K.K. Chatiwal, the Managing Director of IGL, Mr. Mohit Bhatia, the Director, Commercial; Mr. Sanjay Kumar, the CFO; and Mr. Manjeet Gulati, VP Finance. With this, I shall now hand over the floor to the management for their opening remarks, which will then be followed by the question-and-answer session. Over to you, sir.

Good afternoon, ladies and gentlemen. I'm Kamal Kishor Chatiwal, Managing Director of IGL, and it's my pleasure to welcome all of you to the Q2 FY '26 earnings call. Thank you for taking the time to join us today. For those who are new to this forum, let me begin with a brief overview of our organization. Indraprastha Gas Limited, IGL, is one of the India's leading CGD companies operating across 12 geographical areas in 4 states. Our mission continues to focus on providing safe, reliable, sustainable energy solutions to our customers. We have built a well-diversified portfolio of mature and emerging geographical areas that offers both stability and significant growth potential. On the infrastructure front, our network continues to expand steadily. Today, IGL operates a steel pipeline network of over 2,500 kilometers and MDPE network of approximately 29,000 kilometers. So through this robust infrastructure, we supply natural gas to more than 31.75 lakh households, nearly 5,300 industrial units and around 7,200 commercial establishments. Additionally, we operate 955 CNG stations across 4 states. Turning now to the financial performance -- financial and operational performance for Q2 FY '26. I'll just give a broad overview. The details will be shared by our Director, Commercial. So the overall sales grew by around 3% year-on-year. The CNG segment registered a 3% growth, while PNG volumes grew by 6%. Although the sales to DTC and DIMTS declined due to their ongoing transition from CNG to electric mobility, the underlying CNG demand remains strong, excluding DTC, the CNG volumes grew around 10%, reflecting continued traction across private and commercial vehicle segments. A key growth driver for the quarter has been the continued increase in CNG vehicle adoption. On a 12-month rolling basis, we witnessed an average monthly addition of around 19,000 CNG vehicles. a 21% increase over Q2 of last year. The central government's GST rationalization, reducing GST on CNG vehicles from 28% to 18% has further improved CNG's competitiveness, not only relative to other fuels, but also relative to EV especially. As a result, October alone saw 31,000 new CNG vehicle additions supported by active demand and GST benefits. With effect from 1st October, the reduction of VAT on domestic gas sourced from Gujarat from 15% to 2% has also lowered the input gas cost approximately INR 1 per SCM. And this is expected to positively contribute to EBITDA margins in the upcoming months. And in addition to that, the notification by PNGRB regarding Zone 1 classification for CNG transport and domestic PNG is also there. The implementation of that is yet to start. So we are expecting that to be notified shortly. And once that is implemented, there will be benefits. And when the exact number comes, then we will be able to give the quantum of the benefits. That concludes my opening remarks, and I will now invite our Director, Commercial, Mohit Bhatiaji, to share his comments.

Thank you, Managing Director, Mr. K.K.Chatiwal. And good afternoon to everyone. I am Mohit Bhatia, Director of Commercial at IGL. I join, the today's, in welcoming along with Managing Director, all our investors, fund managers and analysts to today's session. Let me take you through the key financial and operational highlights of quarter 2 for the financial year '25, '26. Our total sales volume for the quarter stood at 857 million standard cubic meter as compared to 830 million standard cubic meter during the same period of last year, reflecting a 3% year-on-year growth. This translates to an average daily volume of 9.31 million standard cubic meter as compared to 9.03 during the same period for the last year. While Delhi's growth remains flat overall, however, the NCR that is the national capital region grew by 7%, whereas the other GAs, including the new GA are shown a healthy growth of 16% during the quarter 2 over the last quarter for the same last year. In terms of quarterly average CNG sales, I think, IGL crossed 50 lakh kgs per day with volumes reaching almost 7 million scmd, making a growth of 3%. If we exclude the DTC sales, CNG grew by around 10% year-on-year basis. With the DTC share declining in the coming quarters, we expect CNG growth to remain healthy. In the PNG segment, excluding the NG part, overall sales increased by 6%, reaching 1.84 million standard cubic meter per day compared to 1.74 million standard cubic meter in the Q2 last year. The total revenue for this quarter stood at INR 4,432 crores with a growth of 9% year-on-year. Our profitability EBITDA for the quarter stood at INR 443 crores compared to INR 512 crores in the previous quarter and INR 532 crores in Q2 last year. The decline is primarily due to the reason in the average gas procurement costs. Consequently, the PAT for the quarter stood at INR 373 crores versus INR 431 crores during Q2 of last year. As highlighted by our Managing Director, EBITDA margins are expected to improve going forward, driven by the growth in the volumes, reduction in Gujarat VAT on domestic gas procurement effective October '25. Further, as we mentioned, the upcoming single-zone tariff framework announced by PNGRB, which aims to rationalize tariffs and bring CNG and domestic PNG under a unified structure will also have a positive impacts on the margin. Once implemented, this framework is expected to significantly benefit the entire CGD sector, particularly company like IGL operating far from the gas sources and should positively influence ideal margin in the near future. That concludes my remarks, and we are now opening the floor for the Q&A session.

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

I hope, I'm audible.

Yes, yes. You're audible.

Sir, just first question was on the Delhi number, which you mentioned was flat on a Y-o-Y basis for this quarter, is it possible to get a comparable number for Q1? What was the daily volume growth like in Q1 of this year?

Delhi volumes in the Q1 was also, I think, 1%, 1.5% positive if we include the DTC numbers. And if we exclude the DTC numbers, it was around 7% to 8%. But with the dimission in the DTC because the DTC average sales in the month of September, it was hardly left around 30,000 per month only. So that's why this is a trend. And in coming years, we look forward for a healthy growth in terms of CNG because the historical sales of DTC will be absolutely almost zeroed out.

So sir, given this kind of run rate, is it possible to look at what -- would you like to still maintain the 6% to 7% overall volume growth guidance for FY '26, I believe that was shared earlier.

Yes, we look forward for the same around maybe 8% to 10%. If we exclude the DTC volumes, the historical volumes as well as the current and then we overall see, so I think it is in the range of 6% to 7%. And with the newer GAs performing well closer to a double-digit growth, we expect to have in the range of maybe 8% to 10%.

Understood. And the second question was, I think the obvious question we had about the Saudi JV. Just wanted to understand the strategic rationale for looking at the Middle East suddenly as an option? And if you can also throw some color on what kind of investment, if any, has been thought of? And how will the financing -- the modalities of this whole move that you have?

Actually, that we feel is a very, very big opportunity because we have done -- we have sent a team there to assess their existing industrial cities. Just to give you a brief, Saudi has divided the whole Kingdom in 36 industrial cities. Out of that, they have awarded 7 industrial cities. Presently, they are on liquid fuels, okay, liquid fuels, LPG, propane and all those things, even the heavier fuels also. And they want to transition to gas. So after the 7, now the next in the line is 5. And there, the development is a little planned in the sense that they open up those industrial cities where the trunk lines are available, okay? So these -- very near to these industrial cities, gas is available. And that gas trunk line is operated by Aramco. And each industrial city has a potential of 1 million to 1.5 million of gas. And the laying cost of the network is also not much since the gas is nearby. So we feel each zone should have roughly -- I mean, the investment would be realistic like in India. If we look at India, some of the areas, the pipeline is far away and the gas is not available. So individual entities have to lay 80, 90 kilometers of pipeline to bring the gas. So that is not the case there. So the amount of investment would -- to that extent will be less, but the volume potential is huge in each industrial city, okay. So IGL will provide the technical, operational, safety assistance or assist in developing those aspects and the financial and overall stakeholder management at Saudi would be with our partner. And the interest rate, as you know, there is extremely low. So to that extent, we feel this is a good opportunity. And since this is the first venture, so many more opportunities may come in the gas value chain.

So our returns, therefore, will be in the form of basically a consulting fee in terms of the service that we provide or...

No, no. We are investing. So we are investing -- I mean, the company, we will be having the stake around 40% equity, okay? The partner would have 60%. So that's the time. It's not a consulting assignment. It is investment also. And that will be a JV, joint venture, in the form of a JV, where 40% stake will be IGL. And we'll put in money, we'll put in expertise also, we'll send people there who will implement all those on ground.

Sir, if I may ask one follow-up. What is the regulatory and sort of the margin environment for these licenses? Is it similar to India, different or...

It will meet our threshold. I would only say that it is above our threshold, whatever we have within the company. It is meeting those requirements. And we are not looking at all these 5 cities. Our next target would be to target those 36 industrial. This is in the Phase 1. Next, we want to expand there. So 24 cities will again come up for bidding. There also the tendering is there and 2-stage tendering is there. In the first step, the prequalification is there based on some predefined criteria. And we have to score minimum 60%. But according to us, I think we'll be able to get more than 90% there.

Any numbers you can share? Sorry, sir. Any numbers...

Right now, actually the tender -- we don't have the tender document as such. That will be available once we are qualified, and the results will be announced in January 9. The last date of bid is 29th of November. So we'll be submitting our bid for prequalification. And then after once -- there are some procedural requirements there that you need to have a MISA license and all those things. So we are in the process of doing all those. And we are taking help of Saudi -- I mean, international consultants based in Saudi, Grant Thornton. So that's our consultant for the assignment. And so that's the -- whatever prerequisites are there for that submitting that bid, we are in the process of doing that once that is done. Then maybe after January, we will know based on the tender document, what are the pricing and all those things.

Understood. Sir, one last question. This was more around this quarter's margin reduction and the gas cost increase. Just wanted to understand what was -- whether there was a reduction in New Well Gas and APM allocation for this quarter? And any spot LNG procurement, if at all, was done in this quarter because of which costs have gone up?

Actually, there is no spot procurement in our portfolio, all are term contracts. Only thing is that Henry Hub has increased, dollar appreciation is there, rupee has depreciated. So these are the major impacts in addition to the reduction in this APM and New Well Gas.

How much was the reduction, sir, this quarter...

Yes, Sanjay will be sharing that.

So if you talk about APM gas, so last quarter, it was out of the priority segment, 44% was the allocation for priority segment. And this quarter, it is 41%. In terms of NWG, last quarter, it was 13%. It has come down to 10%. And HPHT also, we had some major contracts or major supplies through HPHT last quarter. It was 16%. This quarter, it was 10%. So RLNG component has increased from 25% to 37%. So that's the mix change which has happened in the current quarter, which basically increased the gas cost.

The next question is from the line of Maulik Patel from Equirus Securities.

Sir, you mentioned that ex DTC in this quarter, the volume growth was 10% for Delhi?

Yes.

No, for Delhi, it was 7% overall 10%, excluding DTC sales, overall, we grew by 10% in CNG. And if we talk about only Delhi, the growth was 7%.

Got it. But sir, this quarter, it seems NCR growth has been on the lower side, right? Generally, you will grow around 10%, 12% growth rate on NCR. This quarter, the NCR growth, as you mentioned, was around 7%, 8% only.

Yes, it was 7% to 8%, correct.

Any specific reason? Or this is a new normal or you expect that growth to bounce back?

I think it should bounce back. Maybe there has been a little bit dip in the industrial segment, we can say, if we bifurcate and there has been certain dip in that. And we are hopeful to recover it back.

Actually, if I may just add to that, the LPG prices have been a little soft. As you know, the crude is around $60, $65 range. So that competitiveness is there, and there is minor switch from gas to propane from those who have got this flexibility.

But sir, I think so -- when we say about 7% growth in NCR and the argument what you have given is more on the industrial side where the growth was on an weaker side, right? But CNG growth has been good as per you, right? CNG in NCR would have grown by what percentage, sir?

NCR, CNG has grown by 9% and PNG is 5%.

CNG grew by 9% and the PNG grew by 5%. Got it. And sir, one more last question. On this Gujarat government VAT reduction, which you have got it now, is there any possibility that government of Gujarat can go to [indiscernible] because there is no such notification from the central or the Gujarat government as listed in the agreement -- revision of agreement between GAIL, ONGC and you, right? So is there any possibility that...

Actually, Maulik, your understanding is not correct. There's nothing related to Gujarat government. Okay. They have not issued anything that we are reducing VAT. The VAT remains 15%. It is only the -- because it is high seas, offshore sale that has happened and the arrangement is between GAIL and ONGC, and they are delivering us the gas at Delhi. So nothing to be -- nothing that the VAT rates have been reduced. Now we are looking at GST.

Sir, from -- I think even a quarter back or 10 years back, the same thing was working, right? GAIL -- ONGC was delivering gas to the GAIL and GAIL was delivering that gas to the IGL or whatever. And this -- the Gujarat government's 15% VAT it probably came in 2017 or '18, I don't know which year. But then why now? Why it was not happened in the past, sir?

I think there has been some intervention from Ministry of Petroleum and Natural Gas and Central government and some things have been worked out for the CGD sector. But this -- there were some representation that this is an additional thing that is there that is not required. So I think something has been done, but details would be available with, I think GAIL and ONGC what is the arrangement. We are not privy to that.

Got it, sir. Sir, and one more. And sir, this rationalization of tariff to the single zone for the CNG, what kind of a cost saving you will have it at a company level? Will it be closer to around INR 1 per SCM?

I think it should be -- I mean, the numbers are important there, but the numbers, those are there floating around, it should be more than INR 1.

More than INR 1.

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

Sir, as you mentioned, the cost of gas savings of INR 1 per SCM due to VAT reduction to 2% from earlier 15%. But sir, are we planning to pass on these benefits to the CNG and the DPNG consumers because we have cut the CNG prices in a non-Delhi region in October month.

Yes, yes. Wherever -- actually, Delhi, we wanted to keep the prices constant, like earlier, we have not increased in anticipation of all these changes. So that was the reason that Delhi has been kept constant. We have passed on INR 1 benefit to the PNG customers and outside NCR, some new GAs, which are growing. So there, we thought that it would be good support that whatever benefit is there, we pass on that, it will help us in expanding the base.

Is there still a scope to pass on more?

We will see that once the tariff notification also comes then we will review the prices and then take a call. But as of now, we are -- our prices are very competitive with respect to the neighboring GAs, and also with respect to alternate fuels.

Sir, second question, if you could provide the gas sourcing details for this quarter, how much was APM, NWG, crude link, Henry Hub, spot? And that is mostly into the mmscmd term, that would be helpful. I know that you have a little bit shared in the percentage term, but if in mmscmd, it would be helpful.

Okay. So the gas sourcing, which happened in Q2 was the APM, non-APM gas, domestic gas was 3.25 million cubic meters per day. This was 41% of the priority segment. NWG was 0.81 million. Coal bed methane gas was 0.11 million. HPHT domestic gas was 0.76 million and RLNG was 2.91 million. So this comprised of 7.83 million cubic meter of priority segment sales.

Okay. Sir, last question from my side. If we try to back calculate the difference between the DTC versus CNG loss. So in the last quarter, in Q1, you mentioned 88,000 kind of -- 88,000 scmd kind of consumption on a daily basis, while in September ending, you just mentioned 30,000 scmd. If we add back the difference of 0.06 mmscmd into the CNG volume, then the volume -- total CNG volume will reach approximately 7.03 mmscmd from the -- which we reported 6.97 mmscmd, and still, if we try to back calculate the Y-o-Y growth is hardly a 6%, while you are indicating a 7% and 10%. Can you please correct me where I'm losing?

If you see, we need to compare it with the historical. So just some data I'll share with you. Last year, September, we were averaging out around 2 lakhs per day, so which has come down to almost 30,000 per day. And Q1 trend we see in the June month, I said you also mentioned that around 80,000 per day, whereas last year same June was around 215,000 roughly. So I think the historical figures need to be looked into while calculating the growth. So I think I'm able to respond to you.

Yes, yes. And lastly, how many DTC buses are remained to be phased out in this year?

Yes. Almost now it has come down drastically and now only hardly 28,000 to 30,000 per day sales are there. So further, we expect...

We have -- the DTC buses remain on -- in operation is 226. And DIMTS, it is remaining at 1,750. So overall both put together, 2,000 buses are there. Last quarter this number was 3,200.

The next question is from the line of Varatharajan from Antique Limited.

Looking at the trade margin of OMCs, has there been a significant change during the quarter?

No, there is no change in trade margin for -- during the quarter for the OMC.

Does the contract have any kind of an escalation built into it?

Yes, there is -- for outside Delhi GAs, there is a provision of 5% increase in the trade margin.

Per annum?

Outside Delhi. Delhi is -- I mean, there is no agreement as such on Delhi. So outside Delhi, you can say the 25% volume, there is an agreement. I think the agreement is with ACE. That you may be aware. You may be referring to that. So 5% increase is there.

Secondly, the OpEx for the quarter seems to be on the lower side. Is that something sustainable? What led to that kind of a lower OpEx?

Actually, mainly the savings have been in the repair and maintenance and power and fuel. I mean power and fuel is marginal in the sense that some of the gas equipments we have shifted to power. So that has been some -- but the major improvement has been in the repair and maintenance, some operational efficiencies there.

Should we assume this is more or less a new normal?

Yes, this is a new normal. Rather, we are focusing on improving it further, rupees per SCM of R&M, we are constantly improving and the partial benefits have been realized, we feel that we can improve further.