Petronet LNG Limited (PETRONET) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '24 Earnings Conference Call of Petronet LNG Limited, hosted by PhillipCapital (India) Pvt. Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Tiwari from PhillipCapital (India) Pvt. Ltd. Thank you, and over to you, sir.

Thanks, Michelle. Good morning, ladies and gentlemen. On behalf of PhillipCapital (India) Ltd., I welcome everyone to Petronet LNG's Third Quarter FY '24 Earnings Call. We have the pleasure of having with us today Mr. Vinod Kumar Mishra, Director Finance; Mr. Rakesh Chawla, GGM and President Finance; Mr. Gyanendra Kumar Sharma, GGM and President Marketing; Mr. Vivek Mittal, CGM and VP Marketing; Mr. Debabrata, General Manager, Finance; Mr. Vikash Maheswari, Deputy General Manager Finance. I will now hand over the floor to management for their opening remarks, which shall be followed by a Q&A session. Over to you, sir.

Thank you very much. Very good morning to all of you. First of all, I'll start this conference with the very good news that we have registered highest ever PBT and PAT in this quarter of INR 1,597 crores of PBT and INR 1,191 crores of PAT. And also 9-month period also has registered a highest ever PBT of INR 3,761 crores. So this is just highlight. Now I'll go to the main concept. So Dahej has been utilized to the extent of 96% this time, and total throughput has been 218 TBTU as against 210 TBTU in the previous quarter and 154 TBTU in the corresponding quarter. If you look at Dahej and Kochi Terminal together, we have registered 232 TBTU of throughput in this quarter as against 223 TBTU in the last quarter and 167 TBTU in the corresponding quarter. And the quarterly performance, if you look at the PAT has been INR 1,597 crores -- PBT has been INR 1,597 crores as against PBT of INR 1,586 crores in the corresponding quarter and INR 1,102 crores in the previous quarter. And PAT has been at this time, INR 1,191 crores as against INR 1,186 crores in the corresponding quarter and INR 818 crores in the previous quarter. So if you look at the growth, there has been 46% growth in PAT as compared to previous quarter and almost 1% growth over the corresponding quarter. So this is the quarterly result. If you look at the 9-month period, the throughput has been at Dahej 646 TBTU as against 532 TBTU in the previous year's corresponding period and total throughput this time has been 685 TBTU as against 567 TBTU in the corresponding period of the previous year. So there is a growth of almost 21% in volume as compared to the last year 9-month period as compared to current year 9-month period. So this is the growth. And if you look at the profitability for the 9-month period, the total PBT has been INR 3,761 crores as against INR 3,517 crores in the 9-month period of previous year. And if you look at the PAT, it has been INR 2,799 crores this 9 months period of this year as compared to the same period of previous year of around INR 2,626 crores. So there is a growth of almost 7% over that PAT also as compared to previous year's 9-month period. So this has been possible because of the efficiency in operation and higher utilization of Dahej terminal. So these are the highlights I have just told you, and now floor is open for the questions.

[Operator Instructions] We'll take the first question from the line of Vivekanand Subbaraman from AMBIT Private Limited.

I have 2. So the Red Sea disruptions that are happening, is that having any impact on the spot LNG trade? Because I'm sure that there are several cargoes that are coming from markets other than Qatar, especially the U.S. ones. That's question one. The second one, could you give us an update on the collection of the receivables? There were around INR 1,300 crores of past receivables, INR 1,280 crores to be exact, and another INR 600 crores that have gotten added. Could you give us an update on that?

So the first question is regarding Red Sea impact on the cargoes coming to our terminal. So I must first clarify that we have long-term contract with RasGas or now QatarEnergy, Qatargas. So those cargoes coming from Qatar, there is no threat to -- like there is one in Red Sea and they are coming smoothly. There is no issue, long-term contract. As far as other contracts, you are saying any volume coming from because if any volume is coming from U.S., from that side, then only this Red Sea threat is there because anything which passes through Suez Canal and then comes to Red Sea, it is subject to some threat of this -- these attacks by Houthis. But we don't foresee in our port that there is any threat because if at all there is any threat, it could be to the cargoes, which are coming from the U.S. So maybe I'm not sure, but it may be for the cargoes, which GAIL is bringing from U.S., if at all they are bringing. Although they have also swapped the volume. So they're very less likely. I have not seen any threat so far to LNG cargoes coming to our terminal. So this is the answer to question number one. Second question, you are saying that -- what has been your second question?

Update on the receivables? And when do you think you're likely to collect that?

I tell you. What has happened that there was a receivable of use or pay charges to the extent of INR 415 crores for the calendar year 2021. And there is a use or pay charges of INR 848 crores for calendar year 2022. So total INR 1,263 crores was outstanding. This year, we have raised the settlement with our offtakers regarding use or pay charges. And in fact, we have given them 3-year period to bring more volume in this period. Till then, they have been asked to provide us bank guarantee to the extent of INR 415 crores for '21 and INR 848 crores for the year '22. So this is a use or pay charges, which is secured by bank guarantees. And if in 3 years, means for '21, they have to bring the shortfall volumes by December 2024. If they bring entire volume of this shortfall, which is there to the extent of INR 415 crores, whatever it is, then we will in that year may waive that use or pay charges. If they don't bring any volume over and above the committed volume under ADP -- if they don't bring any volume over and above the commitment in that year through 2024, say, this year, then their bank guarantee will be encashed against use or pay charges. So this is the mechanism we have worked out, and this is more or less agreed by all the offtakers, including GSPC, BPCL, IOCL and Torrent, they have all agreed it. And so accordingly, we are going ahead. And for 2022 calendar year, use or pay charges of INR 848 crores, if there is excess volume being brought by them by December 2025, then we may waive this use or pay charges of INR 848 crores if they bring cargoes equivalent to volume of INR 848 crores.

Okay. Just to understand the revenue that has been recognized, what will happen if the volumes that the offtakers consume -- what if they consume the -- I mean, the past shortfall during the 3-year period? Does this mean that you will have to then write back this revenue?

No, no, no. What I'm saying is that there is no revenue loss. If we -- if they bring more cargoes than whatever commitment they have for that particular calendar year 2024, if they bring more cargoes than their commitment and to that extent use or pay charges will be waived off. It's not an adjustment. It will be waived off. And if it is waived off to that extent, maybe that they may not bring the entire volume in the current year for -- which is a shortfall for 2021 calendar year, then to that extent, the bank guarantee is there, we will encash it. Or they will pay it, we will return the bank guarantee, so that could be done. So what I'm saying that my use or pay charges are now secured to that extent that either they will have some extra volume. In that form, it will be there or if they don't bring any volume, it will be encashed and this use or pay charges will be recovered.

Right. I'm just trying to understand, if they bring the extra volumes, then the use or pay charges that you have recognized till now, what will happen to them?

I'm telling you, if they bring extra volume, it will be booked as income of that year when they bring it over and above the ADP commitment, okay? So that will be recognized as that year income. It means if they bring at the end of '24, this would be recognized as normal income at normal regasification charges, it will be recognized. But in lieu of that because they have made an effort to bring extra volume than they have committed, so as a dispensation, as a consideration, we will waive use or pay charges to that extent -- to that quantity, which they have brought more over and above ADP volume. If they say they don't bring any volume by end of 2024 for the shortfall, which has been there in 2021, then entire use or pay charges will be recovered from them against the bank guarantee. If they pay it, okay. If they don't pay it, we will encash the bank guarantee. So what I'm saying that company is secured from loss of revenue in any case, and there is no hit in the revenue. This is what I'm saying.

The next question is from the line of Somaiah V from Avendus Spark.

So first question in terms of the use or pay charges that we have booked for the last calendar...

Sir, your voice is muffled, it's not that clear, sir. May we request you to use your handset, please? As the current participant has left the queue, we will move on to the next question, which is from the line of Sabri Hazarika from Emkay Global.

Yes. So I have 2 questions. First one is relating to this OpEx. So can you give us the reason why it has gone up, the other expenditure has gone up? And what should be the normalized recurring rate going ahead?

Yes. Sabri, there is a provision of INR 228 crores in the OpEx. If that is taken out, that is as per prudent accounting system. We have created a provision of INR 228 crores against the use or pay receivables of CY '21 and CY '22. That is a time-based provision only. And if you take that out INR 228 crores from the other expenses, then you will see that the other expenses are in line.

Okay. Okay. So...

As [ Vinod ] has explained in this scheme of recovery of use or pay, once they bring the volumes, then the revenues will be recorded and also these provisions will be also reversed in due course of time. It has only been created to -- as a prudent accounting policy.

No -- so this is like from the first question itself. So basically, the accounting treatment will not be revenue recognition because that you have already done in CY '21?

See we recognize the revenue. And whenever this revenue comes, there are two things. One is, suppose the revenue comes -- some extra volume comes in 2024, then first of all, the 2024 regas rate will be applicable, not the 2021 or '22 because that is one plus there. And second, once that revenue is booked, the already booked revenue of use or pay will be reversed as it has been explained.

So this is now currently housed as receivable. So it will be a cash -- I mean, INR 415 crores, if it is like fully met up, then it will be adjusted in the receivables and it will be a cash gain rather than P&L gain. And whatever upside is there, that will be booked accordingly and this provision also reversed. Is that the right way?

No, no, it's like that, that whatever provision we have made in that year, we will be booking revenue as it is. Means it is as good as coming in the same year and current year income. But as a consideration, we will think that if they have brought some volume over and above the committed volume for that particular calendar year 2024, then that will be considered for waiver of use or pay charges. So that will be adjusted.

Right, sir. Got it.

And it will not impact revenue, we can say.

It will basically lead to cash income, I guess. Anyways, secondly, the usual bookkeeping question. So what was the service revenue and Ind AS impact and Gorgon volumes in Dahej?

Yes. At gross margin level, impact is INR 136 crores.

INR 136 crores?

Yes, INR 36 crores (sic) [ INR 136 crores ]. There is a ForEx loss of INR 1 crores and a reversal of rent expenses of INR 8 crores. And depreciation and finance cost are INR 84 crores and INR 69 crores, respectively.

Okay. And service income?

Regas service charges -- Q3 regas service charges, INR 623 crores, I think.

INR 623 crores.

Yes, INR 623 crores. This is for the service cargoes.

Okay. And Gorgon volumes in Dahej?

Gorgon volume in Dahej is...

Gorgon volumes in Dahej year-to-date, I can tell you, you can take the adjustment. Year-to-date Gorgon volumes is 14 TBTUs -- 14.4 TBTUs.

14.4 TBTUs?

14.4 TBTUs.

Okay. And trading gains and inventory gains?

Trading gain is there to the extent of INR 40 crores in this quarter. INR 40 crores as compared to INR 19 crores in Q2 and INR 24 crores in the corresponding quarter.

Right. And any inventory gains?

Inventory gains, INR 147 crores.

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

Just wanted to get a sense of some of the CapEx update, both on the capacity expansions that are going on. And any update you can give us on the petrochemical project, that would be helpful.

Expansion project, as you must be knowing, we have been updating you time and again that our expansion of Dahej terminal from 17.5 MMTPA to 22.5 MMTPA will be completed by March 2025. So after that, it will be available for use. Okay. And as regards this petrochemical you have just raised the question, we had clarified last time also, there is no -- not much update on that, but that has been approved by the Board. And the investment we have already declared INR 20,685 crores, but this is including the soft cost. So all those things are going on. And I think now we are in the process of finalizing all the licensor selection and all those things are going on. So maybe that we have already ordered for licensor selection, I think. So that part is going on. So it is in the process, not much update on that.

Okay. One small question, if I may. Any update, and forgive me if you've already answered this on it, on the second level Kochi connectivity, sir? Pipeline over the small stretch that was pending completion...

Yes, yes, yes. Update is that so far, this section of Coimbatore to Krishnagiri is pending, 250 kilometers. And as GAIL has committed, this will be completed by this year-end. It is already under review by PRAGATI or the PMO office review. So we are hopeful that by this year end, this will be connected to Bangalore. And after that, it will be connected to the national gas grid.

So for FY '25 ideally, at least we should see some additional volumes coming through, that would be the expectation, sir, from Kochi, right?

We can hope it because I'm also optimistic about the completion of this pipeline because once this is completed, then it will be open for utilization because there can be more volume be consumed through this pipeline for the Southern India because it's better to use from the nearby terminal than bringing from Dabhol or from Dahej, because then unified tariff will be there. And if it is nearer to the source of gas, the unified tariff will be INR 40, INR 39 something. Or if it is away by more than 1,200 kilometers, then it maybe in the range of INR 100. So I think that concept will help us in utilization -- more utilization of Kochi terminal after connectivity with national gas grid.

The next question is from the line of Vikash Jain from CLSA.

A bit of an understanding. So 2021, you had accounted for INR 333 crores of use or pay receivables, right? And of that, you have now created a provision of INR 228 crores. Firstly is, I mean, any reason where the remaining -- INR 105 crores of remaining provision you have not yet created or any particular reason why only INR 228 crores, if I could understand?

No, it's not like that. But INR 330 crores, I don't know where from you are taking. But total, I'm telling you, it was including GST INR 448 crores. This was the total use or pay charges, which was pending. And we have...

This was in 2021, you said?

2021. We had made a provision of around 20% last year of that. That means around INR 90 crores, you can say. And we have made a provision of INR 220 crores -- INR 228 crores this year. And the provision is also based against INR 848 crores, which is for the calendar year 2022. It's INR 848 crores into 20% for the year. And for 3 quarters, we have made 15% because for every financial year, after 1 year, we are making provision of 20%. So 3 quarters have already passed. So we are -- now we have decided to make a provision on a quarterly basis. So accordingly, we have made a provision of 15% of INR 848 crores. So this is coming to INR 127 crores. And if you look at the last year provision of INR 448 crores, 30% of that we have made. So around INR 130 crores and divided by -- it's a 9-month period, if we take it, it will become around INR 100 crores almost. So total comes INR 228 crores. INR 128 crores, you can say for the current year 20% for this INR 848 crores, and INR 100 crores for the previous year, INR 448 crores into 30% and -- into 9 divided by 12. So it comes to INR 100 crores around. So total INR 228 crores provision we have made this time.

So just to kind of make it simple of, I think, INR 894 crores of total use or pay, right? '21 and '22 put together, INR 848 crores and -- sorry, not...

INR 400 crores (sic) [ INR 448 crores ] -- INR 1,200 crores -- INR 1,300 crores.

Sorry, INR 1,300 crores of use or pay, how much provision have you made so far?