Indraprastha Gas Limited (IGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Indraprastha Gas Limited Q1 FY '25 Conference Call, hosted by IIFL Securities. [Operator Instructions] please note that this conference is being recorded. I now hand the conference over to Mr. Harsh Dole from IIFL Securities Limited. Thank you, and over to you.

Thanks, moderator. Greetings, everyone. On behalf of IIFL Securities, I welcome you all for the first quarter FY '25 earnings call of Indraprastha Gas. To discuss the performance of the quarter and share the operational outlook, we have the senior management team of the company. I'm pleased to introduce MD IGL, Mr. Kamal Kishore Chatiwal; Director Commercial; Mr. Mohit Bhatia; and VP Finance, Mr. Manjeet Singh. I'd request the management to make the opening remarks. Subsequent to which, the call will be open for Q&A. Over to you, Manjeet ji.

Thank you. Welcome ladies and gentlemen. I'm Kamal Kishore Chatiwal, Managing Director of IGL. A very warm welcome to all of you in the quarter 1 FY '25 earnings call of IGL. To start with, I thank you all for taking out time and attending the call. To give you a brief background of IGL for some of you, who may be new joining to this call. IGL is one of the leading CGD company in India. The company is currently operating in 11 geographical areas spread across 4 states. We have a good mix of mature and emerging GAs, which has provided us both challenges and opportunities. In terms of infrastructure development, we have developed steel pipeline network of more than 2,100 kilometers and DP network of approximately 24,500 kilometers, which provides natural gas to more than 27 lakh households, close to 5,000 industrial customers, 6,100 commercial customers. IGL operates more than 882 CNG stations, serving approximately 20 lakh vehicles. Now speaking about the sales volumes, CNG sales volume has increased year-on-year by 5%. This is after absorbing the decrease in CNG sales to DTC buses. The sales in Delhi is flat, which -- and we have seen a double-digit growth in the outside Delhi GAs. For PNG sales volume, our PNG sales has increased 7% year-on-year. Further breaking it down, we have seen a 16% increase in domestic segment sales. While our Industrial and Commercial segment sales have risen by 6%, demonstrating the increased adoption of PNG gas as a reliable and efficient energy source. Approximately an addition of about 16,000 new and retrofitted CNG vehicles per month is being witnessed during current quarter, as against an average of about 13,500 during the corresponding quarter of previous year. We are taking initiatives in industrial and commercial sectors to increase the sales in the sector and will focus on this segment to contribute in volume growth. When we divide this into state-wide sales, year-on-year increase in overall sales is like this. Increase of sales in Delhi is 1%. In UP, it's 14%, Haryana, 12%; and Rajasthan, it is exceeding 100%. And one of the factors is that base is small there. There is a 1% decrease in sales in sequential quarters as the quarter one is generally a subdued quarter, where sales volume are generally low as schools remain closed, due to summer vacation and school buses, vans are not playing. Further, there is a decrease in PNG demand due to movement of household for vacations outside Delhi and also heat requirement is lesser in Q1 as compared to Q4. This was my opening remarks. And now I request our Director Commercial, to give his opening remarks.

Thank you, Mr. Chatiwal. So good afternoon, everyone. I am Mohit Bhatia, Director Commercial of Indraprastha Gas Limited, and I welcome all our investors, fund houses and analysts to participate in today's call. I presume that you would have gone through our financials, which were reported on 24th of this month. So let me share the highlights of our financial performance for Q1, and we are pleased to report that our sales volume for Q1 was 786 million standard meter cube, which was up by 5% year-over-year on the first quarter, which accounts to 8.64 million of sales per day vis-a-vis if we compare with last quarter, it was 8.2 million. So the growth of around 0.44 million per day. Secondly, the revenue was INR 3,877 crores, which is almost 4% higher than the previous year. Coming to the EBITDA, it was INR 582 crores. It was down by 9% over last year, mainly on account of the reduction in the CNG sales prices during the month of March. However, there is an increase of 11% on sequential basis. So the profit after the tax that is the PAT was INR 401 crores during the Q1 as compared to the last year of INR 438 crores. Despite decline in DTC CNG sales, there is an overall increase in the CNG sales volume by 5% on the year-on-year basis, which suggests a growing preference for CNG vehicles among the consumers. The trend reinforced our optimism about the long-term potential of the CNG market and positions our continued growth. In addition to that, I want to highlight specifically that we are seeing a promising development in the 2-wheeler market. Particularly, we all know that Bajaj Motors has recently introduced CNG Power 2 vehicle bikes. And TVS has also shown keen interest in the similar offerings, it is coming up. So with this, we expect that this trend is going to have a significant increase in the CNG sales in future, particularly. And we, as IGL is geared for the -- putting up the infrastructure for the 2-wheeler segment, and we are confident to benefit from this shift as a leading player in this market. So with this, I once again welcome all of you for the open session for the Q&A.

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

Yes. I had a couple of questions. Firstly, I believe it has been mentioned by MD sir earlier as well that you're targeting about 9.5 MMSCMD of volume by the end of this year. Just wanted to clarify that the 9.5 MMSCMD is essentially the exit rate that is being targeted by the end of the year? Or is that the average volume expect to reach by the fourth quarter? Just to get some clarity on that.

Actually, last year, we closed it at around 8.73 MMSCMD. And the first quarter is 8.64 MMSCMD. And if you look at the previous year, it was at 8.2 MMSCMD. From 8.2 MMSCMD, we are at 8.64 MMSCMD. Normally, the fourth quarter is the highest because of the winter and also the number of stations what we have planned that's commissioned by that time. So we are targeting 9.5 MMSCMD -- exiting the fourth quarter at 9.5 MMSCMD.

Understood, sir. perfectly. Just a follow-up to that. In terms of achieving that, how much of a role will be moderation in LNG prices play in the sense that if there is once again a spike in LNG, given the constantly decreasing allocation of priority gas, is that sort of -- any sort of downside risk to our expectations? Or you -- this guidance is building in that uncertainty over the next year 12 months?

That uncertainty we have already built in, in the sense that if you look at our EBITDA per SCM guidance that is 7 to 8.5 levels. We are at 7.6. Just before the end of the quarter, we were able to pass on INR 1 increase to the customers. So I believe that will be -- next quarter will be more than 8. So we are in the comfortable range. So any adverse impact as far as LNG is concerned, so I think we have some cushion to absorb that. So that is fostering in that any increase unless there is a war like Ukraine, Russia, there was a sudden spike up to $40, $50 per MMBtu. Barring that, the price minor fluctuation, 10%, 15%, is factored in.

Understood. Sir, last 2 questions from my side. If we can quantify -- and I apologize if you've already said this, but the absolute volume today out of the 8.6 that we did this quarter, UP, Haryana and Rajasthan would be what percentage of this volume roughly?

You see, Delhi is now at 70%. Earlier, it was at 73%. Delhi is 70% and other than Delhi is 30%. So they are increasing their share. And if you look at state-wise, so Haryana -- UP is at 2.14, Delhi is 5.26, Haryana is 0.66 and Rajasthan is 0.1.

Got it, sir. And sir, last question from my side. For FY '26, therefore, given the exit rate of 9.5, what kind of growth rate can we sort of expect given that the full impact of at least the EV conversion would already be in the system, whatever buses and all our remaining would probably have gone to you. So starting -- I mean, for FY '26, then what sort of run rate should we be building in from a volume perspective?

Actually, our target is 10% to 12% growth. And now our LNG business has also started contributing. Last year, one of our stations got commissioned and it is currently doing 4,000 kg, 5,000 kg per day. So -- and this -- we have planned five to six more stations, including one exclusive station for Concor. So we expect those volumes to also come in. In addition to that, our strategy is -- the Board is recently approved in that the LNG station number is even higher in the next 5, 6 years, that's around 100. So that coupled with say, any green logistics requirement in the country. We are of the opinion that, that sector is currently at initial stage. And by '26 -- by FY '26, so that should contribute significantly. And whatever threat is there from EV would be, I think, more than negate it, and so we see 10% to 12% growth in the next 5 to 6 years.

So just to supplement what Mr. Chatiwal just mentioned. See, as I said in the opening listing also that Bajaj Motors has already launched 2-wheeler and this segment is going to come up well. Around 30,000 bikes will be on the roads from maybe -- it has already started and it will be further strengthened. So if this type of the 2-wheeler segment picks up, we also look forward for a substantial increase in the sales volume.

[Operator Instructions] The next question is from the line of Somaiah V from Avendus Spark.

Sir, you did mention volume breakup GA wise. Would it be possible to share volume breakup based on vehicles, cabs, autos, buses?

You see, I can give you the rough numbers that 40% is passenger vehicle segment, then 40% is commercial segment and 20% is buses.

So it would be possible to bring private cabs and autos also within this?

40%, what I said was the private vehicles.

Cabs and autos particularly?

Now, I will give you the breakup. Buses at 18%, private cars 42% and taxis at 13%, autos at 10% and light goods vehicle is at 18% and other mandatory vehicles at 40%.

So this is at a consolidated level, all GAs put together, or total CNG breakup?

Yes, all GAs.

Understood, sir. Sir, also, if you could quantify the impact of DTC buses in this quarter? And is it by and large, over what should we expect for the rest of the year? And also, I think there was thousand-odd buses -- CNG buses that were supposed to get an extension in, I think, June. So any update on that front?

You see, last year in '23, it was at 3.1 lakhs. The DTC volumes was at 3.1 lakhs, which last year was 2.54 lakhs and it has been reduced to 1.5 lakhs.

So what do we expect for rest of the year, sir. This 1.5 lakhs would be maintained or it will...

No, no. By '26, we have made it clear earlier also. In next 2 to 3 years, we expect the volumes from DTC to go away because that is the stated policy of Delhi government.

Got it. Sir, one last question. What would be the APM mix, current quarter?

See, APM is at 62% and 38% is RLNG.

So this is for Q1 '25?

Q1.

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

Congratulations for the good set of numbers. Sir, we wanted to understand, despite INR 2.5 per kg cut in the CNG prices in the second week of March, your CNG net realization per unit has been largely at the same level. So is it because of the geography-wise CNG mix, which is changing in favor of higher CNG price realization?

So actually, if you look at this net of tax INR 2.5 amounts to around INR 1.77 per kg. We affected this from first week of March. So you can say that the fourth quarter -- around 2/3 impact was there in fourth quarter or rather 1/3 was there in the fourth quarter and the full impact was there in the first quarter. So net-net, if you see INR 1.77. Net of tax if you see, it will be even lesser than that, if you reduce 14% also from that. And in SCM terms, it is slightly lower -- even lower. So but in kg terms, that is the impact. If you look at the impact, last year, we did EBITDA per SCM level, if you look at that. We did 6.58 per SCM in quarter 4, and that has improved to 7.4, right? Now this improvement has been because of two reasons. One is that there is some bit of operational efficiency that we have brought in, including reduction in gas loss. Second is gas sourcing, there has been some improvement in gas sourcing. So our cost of gas has also gone down.

Okay. Sir, if you could share the capital expenditures for the first quarter and the guidance for FY '25?

See, we have our CapEx of INR 1,700 crores to INR 1,800 crores for the entire quarter -- for the entire year. And for the first quarter, it is at INR 297 crores as against INR 202 crores in the previous year.

Okay. And last from my side. As you mentioned, the LNG business has started, what will be the margins on the LNG business in terms of rupees per SCM. Are it better than the...?

They are better than CNG because there is -- the excise duty component is not there in LNG and the selling price being the same -- almost the same. So there are better margins in LNG business, especially in GAs, which are closer to the shore. I mean, the transportation cost is lesser if you are closer to the shore.

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

Sir, just to clarify, you mentioned that DTC was 3.1 MMSCMD earlier, which fell to 2.5 MMSCMD in Q1 of FY '24, and that is 1.5 MMSCMD in this quarter. Is that right?

Yes, yes. So actually, that is in KG terms, 3.1 MMSCMD.

That's million kgs?

It's per day data. 3.1 lakh kg per day.

Okay. Lakh kg per day? Okay sir. So this is the kind of fall, which has happened in the last 2, 3 years. And -- Okay. And secondly...

I would say that 3% to 4% is balance. So that will slowly go away in the next maybe 2 to 3 years. And the reason why that is not suddenly is because some of their electric tenders, what we believe is that they have brought out the bus tender. So that has, I think, failed. They do not get the bidders. So that was the reason.

Okay, sir. And is there any impact of this whole DTC share going down on the realization? Because from what I could understand, you gave some sort of like discount to DTC. So the price there is lesser. So there has been also a contributing factor behind margin expansion for the company?

That is also one of the factors that in the sense that the discount is closer to INR 5 per kg. And it is in lieu of the stations that -- I mean, they gave us the land to set up stations. And we give them a bulk -- and also the bulk discount there, because they are a bulk customer as also the state undertaking. So that was the reason. So that going away, that is a positive impact on the realization front.

Right, sir. Second question is on your gas costs. So despite the sourcing efficiency and also, we had seen some of the benchmarks basically going up and your location also going down. But is there anything specific behind gas cost actually remaining pretty stable or even down Q-on-Q?

One of the reason is that you've got throughout the year, some opportunity when the spot comes down. So we utilize one such opportunity to source a 5.5 million -- point -- close to 5 lakh gas in that duration. So that was one of the factors because all other rest of the contracts, we have long-term contracts, and we have linked 50% to 60% and balance Brent and JCC linked, JKM linked. So those are the mix of our contracts. Most of them are long term -- long and medium term. So that was the 5%, 7%, 8% window so we could utilize that.

500,000 standard cubic meter per day?

5 lakh SCMD gas was there.

And sir, last question, what was your CNG volume in kg terms?

CNG volume in KG terms? So almost at a daily level, if we say that it was around 47 lakhs, you can say, in the last quarter.

The next question is from the line of Kirtan Mehta from BOB Capital Markets.

In terms of the gas purchase, you shared that we have a 38% RLNG mix. Would we be able to split that mix in to the domestically what we buy is HPST and what is basically contracted in this possible?

There was actually 0.4 of HPHT into that, that we got. Then we got some of the spot through IGX and other this things, and however, balances to our short-term and medium-term contracts that we have.

Right. And would it be also possible to quantify what is our average gas transportation cost for us?

Actually, we are into Zone 2 tariff. Most of this is in Zone 2 tariff. So currently, that is -- the APM is at 79 plus 12% GST, APM, non-APM is at 79 and ceiling price is -- comes into zone 3 so that is 114.52 plus 12%. And rest other long-term spot, everything is at zone 2 type that is 79 per MMBTU.

Understood, sir. You also mentioned about the latest plan for the LNG station. Currently, it's doing 4,000 to 5,000 kg, what would be the potential for each LNG station, how much they can do, depending on the numbers...

We believe they can go up to 20,000, if they are on the -- I mean they have the vehicle population is also there, and they are strategically located. So 20,000, they should do easily.

And in terms of the Concor LNG station that we spoke about, what could be the potential for the sale?

They have around 100 vehicles initially. So I would assume that if every second day they fill, so that filling is 400 so. Even a 50 fill or 1/4 of those vehicles get filled every day, so that will be 10,000 kg. So that is under constructure, and we are hopeful that by March -- I mean, by the end of the year, that should be operational.

The next question is from the line of S. Ramesh from Nirmal Bang Equities.

So when you talk about these vehicle conversion numbers going up from 13,500 to 16,000, that's not showing up in the kind of growth that you've reported for CNG. And this has been a challenge in the last 2, 3 years. You have been reporting numbers, but there doesn't seem to be any direct linkage in terms of the growth percentage in CNG consumption compared to the vehicle additions. So when do you see that actual CNG vehicles -- CNG sales growth actually synchronizing with the vehicle additions?

So I think some of the impact could not be visible due to the DTC volumes going down. And I'm hopeful that in next quarter, in quarter 2, you will see a significant increase in CNG volumes.

When you say significant, what will be the percentage growth on Y-o-Y?

I mean it should be around 8% to 10%.

8% to 10%. And secondly, if you look at the LNG vehicle strategy, the LNG fuel sales strategy. So in terms of the return on capital employed, how would it compare with the current return on capital employed on the CNG business. So because if you were to get about 5% additional growth from LNG, you need about 100 stations according to my rough calculations. So would your Concor stations actually be priority in terms of the visible addition to LNG stations and is that going to be incrementally going faster than CNG sales? And in terms of ROCE based on the per station expenditure, would it be comparable or higher than the ROCE you get on the current CNG business?

You see It has a potential of higher ROCE just because the volume -- I mean, per station would definitely be higher. And regarding Concor, this is more of a captive kind of a thing. It is between the bilateral arrangement, you can say, where there 60 stations all over India, we have an MOU to convert those to LNG, but they are also -- as and when they pick up pace, we will set up stations. Currently, we are focusing on two stations, one in Greater Noida and another is in Bengaluru. So that is there. But in case there is an uptick in, say, the heavy and medium commercial vehicle segment across India. If there are vehicles, so we get feelers that yes, there is a demand for green logistics especially from steel, cement and FMCG players and MNC players that too because back home, there is pressure there. So we see a great future for this LNG business and ROCE definitely would be better because current taxation is favorable to set up an LNG station. And the cost, more or less, a big CNG station and LNG station, 10% to 20% cost is higher, but the net realization is higher in LNG.

So if you look at the next two years, the growth will be still driven by the existing CNG and PNG sales. So should we look at LNG adding to a growth from '27?

So we will be setting up 6 stations -- 5 to 6 stations this year. And one station that's set up because it is in a location, Ajmer. And that too, it's not on golden quadrilateral, but on the other highway. So there 4,000 to 5,000 if it is doing, so that's a good number for that station. And in case 5 to 6 more come up, so they will be equivalent to the other big CNG stations that we have. So 20,000 one station selling would be a good volume. Right now, our strategy is to put up in our GA. So there, it will be a mix of both LNG and CNG also. So easily, we can target 20,000.

The next question is from the line of Devang Patel from Sumika Capital.

Yes, sir, I wanted to understand there will be [indiscernible] beyond the current year given that CBG plants [indiscernible] plus you mentioned 2-wheeler infra, some initiations and LNG stations. So all put together, what could our CapEx be?

Yes. So that's fine. I think we have already a plan for 10 CBG plants for this year. And we are looking for the JV mode also. And one of the CBG plant at Narela, it is already in construction with the 100 metric tonne MSW feedstock, which we'll be generating around 4 to 5 tonnes per day. And nine another in the pipeline, and we are looking forward with some land challenges, but it is coming up. So this, we are looking into it. And regarding the CapEx thing, so one CBG plant CapEx around INR 30 crores to INR 35 crores. So for 10, it will be around INR 300 crores, INR 350-odd crores. So this type of some strategy planning we already have lined up.

And this government's indication of blending or more of CBG, will there be [indiscernible]

Your voice is not audible, if it can be a little bit louder.

Devang, can you repeat your question again?

On a continuing basis, what kind of lending targets would you like to reach for CBG?

The government has some plans for -- in the coming years, around 5% of the lending. But as on that, because it all depends upon the production and the quality, in terms of purity of CBG. So still, a lot of things are going on. So the lending plans are there. But today, as on date, it is not that high -- the volumes are not that high.

So I would just add to that, that the 5% lending mandate is there. So that is by 2030, progressively going from 1% to 5%. So we plan to reach that 5% by 1 or 2 years in advance of whatever is the mandate. So that is our plan. That 5% of whatever volumes we are doing would be CBG. That is our target in the next 3 years. Rather than 5 years, it will be in 3 years.

Okay. And for 2-wheelers, you indicated that you will need to set up separate filling stations or infra or that will be subsumed in the current infrastructure?

No, no. So what we meant was separate dispensing -- dispenser for that. I mean you have a car dispenser and then you have a separate dispenser within the same station for 2 wheelers.

Okay. Sir, lastly, if you're putting 100 LNG stations and on your current base of 800, 900 stations, could LNG volumes contribute 10% of your total volumes once you have all these in place in 5 years from now?

Actually, we were targeting, say, around 20% to 25% coming from those 100 stations because the per station volume would be higher. Say, current our CNG per station volume is around 6,000, so LNG would be doing, say, 10,000 on average. So with that, we target around, say, 18% to 20%, even more than that should come from LNG.

And all these 100 will be within our existing geographical areas or you can [indiscernible] current years?

No, no. 8 to 10, we have planned in our existing GA as of now, but those hundreds are not limited to our GA. They are pan India. Because as you know, LNG -- for setting up LNG station, you don't require any license. I mean you can go to other GAs and set up there.

Okay. Sir, on the industrial side, are we taking any steps to increase the volume growth. We had a better growth in Q4 that's come off in Q1. So are we looking at discounts or any other [indiscernible] point to the growth.

So fine, I think now this Q1, we have touched around 0.8 million of industrial sales per day, whereas there is a growth of around 6% to 7% with the last quarter. And we are also looking on a special pricing also because it is a little bit competitive with the alternate fuels. So some formula-based linked to the our sourcing. We are looking into that, and we have also identified some of the industrial pockets, particularly in Rewari, Bawal area, Gurugram area and Greater Noida and Ghaziabad. And we're trying to target those areas for picking up the industrial volumes.

The next question is from the line of Pratyush Kamal from InCred Capital.

I have two basic questions that I want to put forward regarding this result. First would be, I wanted to know that what is the bifurcation of the sourcing cost when you talk about APM HTPT and RLNG -- average RLNG. So per SCM, what is the cost you are getting sourced from APM HTPT and RLNG. And second would be, again, about long-term renegotiation of the contract. So I think that the current contract, which you'll be -- you might be having with the Brent would be, let's say, 14% plus group. And with Henry Hub, it might be 5.5 plus 1.15 into Henry Hub prices, right? So is there any possibility of the renegotiation when is the contract ending end of year. What could the probable formula be for these renegotiations in the long-term contract.

There is the possibility -- I mean, I will just answer the last question and Director Commercial will answer the balance one. I would say there is a possibility of renegotiation in the sense that we can do a time swap of that. That the Qatar contract is the costliest contract as of now because of the 15% VAT. And in the future deal that has been done, the Gujarat VAT is not there because the deal is happening in Qatar. Okay. The transfer of the asset is happening -- molecule is happening in Qatar. So that 15% is not there. So we are looking at the option of doing a time swap that whatever volumes we have here, we swap it to the -- that contract -- the new contract. And then makeup this quantity that we have swapped, with other available contracts. That is the option that we are exploring. And regarding the other landed costs now, that is the commercial.

So like the APM and non-APM thing, which we are getting at around 38% or so. So it is -- landed cost is around INR 27 to INR 28 per SCM, whereas on the RLNG contracts, like we had some advantages, and that is why the results are also like that. On the medium-term contracts, particularly the Henry Hub and all, we are getting around INR 34 to INR 35 per SCM and the long-term initial contract is around INR 50 per SCM.

Just a quick question regarding the same that. What is the formula for that APM. So I know that the brand is 14% -- 15%. Henry Hub is [indiscernible] 5.5 or something. And what is the formula for that APM in that case for your long-term contracts? And how -- what is the composition of this APM in the total RLNG?

So it is around 38% is the RLNG and around 62%, 63%, we are getting the APM as on date.

In the 38%, what is the composition of this JKM?

JKM would be 5% to 7%.