Petronet LNG Limited (PETRONET) Earnings Call Transcript & Summary

Timeframe, I cannot tell you, but I've told you this will be done as early as possible.

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

So I have 2 questions. Firstly, with respect to the current utilization of the Dahej terminal and Kochi terminal? And what is the volume expectation for FY '25 in particular? And the fact that in -- yesterday in 1 media report, I think, the MD has stated that this year, the LNG demand could be like close to 27 million tonnes versus, say, 22 million tonnes last year. So any comment on that?

Yes. Yes, the utilization level, I will just again tell you that it is 97% this quarter Q4.

Currently, what would be the utilization?

Currently, it is around this figure only. So it is even -- it may be more than that. It is more than that, but we cannot discuss that number. But it is there, not less than this, this much I can say. And Kochi, it has been 22%. It is also almost in the same range as of now, but exact number, we need to know.

But FY '25, any guidance you would want to give?

Guidance, what our MD sir has already declared that it will be -- there's a likely import of 27 million tonnes in the next year, '25, '26 -- '24, '25. So it is likely because now prices have come down. And as you know that Indian market is basically price-sensitive market. So as and when the prices are lower, we will tend to consume more energy. And moreover, this season is also very hot and now the power demand has substantially increased. And given the circular has come of MOP&NG and Power Ministry that more and more power has to produce from gas. So now it is running high and much more gas is being used than otherwise that is used in India. So these are the factors which are driving growth of LNG volumes in the current year, so...

You expect a 20% sort of like LNG demand growth in FY '25, Y-o-Y?

Yes. Yes, we expect it because if you look at last month's number, which has now been published by PPAC, it has been almost 200 MMSCMD total. And out of that, more than 50% is LNG.

Okay. April, you are talking about, right?

Yes, April, I'm talking.

Okay. And just one second question on relating to your balance sheet. So this other financial assets in the long-term that seems to have gone up significantly, so is there any adjustment with respect to like short-term investments or something of that sort because it used to be like 270...

What is the number you've just -- other financial...

From INR 95 crores, it went to like almost like INR 1,700 crores kind of a run rate.

This is nothing, it's all FDs actually. Because we go mutual fund FD, whatever is our investment policy is decided and accordingly we're making investments. So whichever is giving the higher return, it's FD, which is basically more than 12 months.

Okay. So that's why it's classified as long-term assets, but basically, the cash...

Because this is for more 12 months. We are getting a higher rate of interest if we do it for 12 months.

Okay. Okay, sir. Got it, sir.

The next question is from the line of Amit Murarka from Axis Capital.

Just on CapEx, could you just spell out the planned spend for FY '25 and FY '26?

Yes. I can just tell you that, as you know, that we have an aggressive CapEx plan in '25, '26 -- '24, '25 and -- although we have done less CapEx last time. But this time, we expect that more CapEx will be there. But some of the CapEx item, I can tell you that, that may happen in this year. One of them is -- as you know, the tank is almost complete. It will be commissioned maybe in next month. The 2 tanks which we've constructed at a CapEx of almost INR 1,246 crores have been commissioned. So there will not be much CapEx this year because it has been commissioned. And other items, which are going on, are Dahej expansion of INR 570 crores of 5 MMTPA. So that is going on. Next year, by March, it will be completed. So some CapEx may be there from that also. And other CapEx item are there. We have a very aggressive plan. But the only thing is detailing. So we have aggressive CapEx plan, but let us see how much we are able to do, if we can. But we have jetty of INR 1,700 crores plan, but it will not be entirely spent in 1-year. If may take 3 years, we can divide it by 3. And another project, Gopalpur, which is coming up with INR 2,300 crores, but as you know that it will also take 2, 3 years. So we can be get it into 3 so. And petchem project is there, which may have a higher CapEx this year. So we plan to have aggressive CapEx. But right now, I cannot tell you exactly how much it will happen, but we have planned heavy CapEx.

When will the outlay on petchem actually start? Will it start in this quarter again or maybe second half of the year?

Pardon me, can you repeat it...

Actual spends on the petchem project, when will it start -- when you will start spending money on that project?

It may start this year -- this current year, but it may not be too high, but it will be started because we have already appointed licensor. So some payment maybe -- may have to be released to licensor also. So -- and other items may come up when they are awarded. But otherwise, unless and until jobs are awarded or the material has been ordered, there will not be CapEx because right now, it is -- still we are in the stage where we are making all EPC packages and EPCM packages, so for the execution of the project. So all these things are to be seen, but as of now, what will be the total expenditure, this is very difficult to tell. But maybe after 2, 3 quarters, we will be able to tell you, second quarter after, that what is the way forward for the CapEx.

Sure. Who is the licensor, who has been selected for the project?

This is all not something -- it's a international licensor. Very few licensors are there. One of them has been selected, but the 2 licensors have been selected. So these are all U.S. based, U.K. -- Europe-based licensors. But name, I can tell you 2, 3 are there. One is UOP is there. One of them is Lummus. So these are the licensors, so out of 2, 3 technologies only are available for PP and PDH. So these are the licensors who are available across the globe. So out of these, we have appointed, and they are working on it.

Got it. Also, I just wanted to confirm that the 5% annual escalation on Kochi, has it been taken from 1st April?

Yes. Yes. It has been taken.

Okay. Okay. And I remember in the last couple of con call, you had mentioned that the lease accounting impact will start reversing from FY '25?

Yes, it has already started. We have already told the lease accounting impact of the quarter, one it adds up we will see that this time around, it is a nil impact. Even after a small ForEx loss.

Okay. Got it. Sure.

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

Sir, my question is related to competition from new LNG terminals like Chhara and Dabhol breakwater completion. So in the recent HPCL con call, the management has negated that the Chhara terminal will be operational in the second half FY '25. And they will also have the same regas tariff largely in line with the Dahej. So do you expect any kind of competition from these new terminals?

No, I don't expect any competition because we cannot match the geographies of these 2 terminals. It is not possible for any customer to ship their usage base from Dahej to Chhara or any other. So there are a lot of issues in gas supply because connectivity is one of the major issues, which has to be addressed. And our Dahej terminal is very well connected. Almost 5 pipelines are there, which are connected to the Dahej terminal. So evacuation capacity is so high that nobody can match it. And moreover, nowadays, different concept has arrived at unified tariffs has been notified by PNGRB. So if any demand center is close to the source of the gas, then it will be charged very less tariffs. And if it is within 300 kilometers, it's only up to INR 40 per MMBtu. 300 to 1,200 kilometers is INR 79. And if more than 1,200 is almost INR 140. So looking at that thing also, I think whichever terminal is located via the demand center, that will be, I think, used for the purpose, for supply of gas. And moreover, there is no competition. We are a leader in this market, and we will remain because nobody can match our capabilities in evacuation of the gas because of the connectivity of the 4 -- 5 pipelines. And though we are not saying they will not be used; they will also used. They will use their terminal. But they cannot match it. And it's not like that some volume, which is coming to Dahej will go to Chhara now under license. There's nothing like that. From addition volume may come up for them, it will grow there, but our capacities are booked, our customers are there. So if you look at our consumption level, it has been 97% Dahej usage is there last year. So it is continuing. So I think there is no challenge from them. But additional because consumption is increasing day-by-day. As we have said that the whole kitty is increasing. So they will also have some share in the additional kitty, which will be added to the LNG import. So I think that is the only thing. Otherwise, we have a our capacities booked, and we have a higher utilization level, that will remain. And Dabhol, as you have said, they are -- I think they have not constructed this breakwater, but they will be nearing the completion. So right now, because of monsoon, I think it has already been closed. So maybe after October, it will be started. And as you are saying breakwater, breakwater is not enough because even if they construct breakwater. They cannot utilize the Dabhol terminal fully. They will be some air heaters and other changes in the plant, then only they can use it to the highest capacity.

Okay. And second question, during the quarter Q4, you booked the inventory losses of close to INR 107 crores. So can you throw some light on this, how much was the volume on which you have booked the losses, some details about that?

We -- normally, this kind of thing; we don't have. We have told you that there is a loss. I think this should be good enough you can -- you shall be satisfied with the number. Because detailing is, again, we have to -- we cannot discuss all those things in the market, how much is inventory and how much loss is booked. But total, this is the loss we have booked.

Okay. And was it on spot volume --spot LNG volumes?

It is the inventory. Non-submitted inventory -- non-submitted inventories there. So that is there.

Okay. Best of luck.

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

We have discussed about sort of a 5 MMTPA demand increase during FY '25. But without the Dahej terminal already operating at 97% utilization and little demand in the South, which is already again sort of reached 22% level, how much of this we can practically capture during FY '25?

As I said, expansion will be coming up only in the March '25. So maybe it will be available for next 2 year, '25, '26.

Only thing is as you know, historically, we have been able to operate our plant at more than 100% capacity. So we do expect that the majority of this incremental volume will land at Dahej. Inherently, if you take 110%, then we have another 2 million tonne of capacity available. And last year also, there was some spare capacity available. So in total license majority of 4 million, 5 million tonne incremental land in Dahej.

So it will be increasing only, volume will increase substantially, what capital is available. But as I told you, '24, '25 financial years, it will not be available too much. It will come only in the month of March. So practically, it will not be available for financial year '24, '25. But we have capacity of 17.5 million tonnes. This can be utilized to the extent of 110% of the capacity. So we can actually utilize our 17.5 to almost 19.5 million tonnes, even more than that.

Understood. In terms of -- usually, we used to see the shift of some of the volumes when Dabhol goes down during the monsoon months. So is that also possibility exist?

Yes. Yes, that exists now. And right now, power demand has substantially gone up. So now more cargoes whatever it is coming, mostly it will come to Dahej because as you know that Dabhol will not be able to take the additional cargoes now. So that is true and it will like be. And volume certainly will be higher in this April to June quarter and July to September quarter.

But again, limitation is basically the capacity you -- 1 million to 2 million capacity...

You have rightly questioned now. I'll be -- it will be difficult to -- how we will accommodate the cargoes. That's why the 5 MMTPA expansion is very much required. Because this is a game of opportunity when there is an opportunity, we should utilize the entire capacity. But right now, we don't have -- had we had that 5 million tonne now, we would have been ready for additional volumes to any extent. But right now, whatever is available within the framework of 17.5% MMTPA. So plus 10% can be added, that much volume we can process.

Sure. And you were also referring to the unified tariff and our advantage. Just a follow-up question on the Dahej, basically. So we were referring to the, basically, the unified tariff and advantage for the customers within Zone 1, where transportation tariff would be lower. Would you be able to indicate how much percentage of the existing volume lends to the consumers within Zone 1?

See, we are [indiscernible] at. I am just telling you that this is the philosophy going on. That whatever -- whichever terminal is near to the demand center, that will be utilized because there will be lower tariffs. So what I am saying that if any terminal is located at Dhamra, nobody from North India will take gas from Dhamra. Because that tariffs will be of Zone 3. I am saying whichever terminal is a nearest one, it will be utilized. So this was just as a principle, as I was saying that this is normally practice which will be followed because of the unified tariffs.

But is it possible to break down our volumes into Zone 1, Zone 2, Zone 3 just to get some sense?

Actually, we are not transporting gas. It is GAIL. Better you ask this question from GAIL, how much volume is being given in Zone 1 and how much in Zone 2 and Zone 3. So we cannot exactly tell these numbers because we are selling gas external to these customers, GAIL, IOCL, BPCL. So they will be able to tell you better than we.

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

So first question is this 550 capacity that's coming in March '25. What will be the ramp-up time that we expect for in -- in short, I mean FY '26, how much of this is something that we can look like, that's one? Second Kochi-Bangalore Pipeline, what is the timeline at this point we are looking at? Until then, where do we see utilization that we can expect to see them?

Yes. So first question is the capacity availability in March '25, how it will be utilized, how much, but I cannot, ramp up will be there, of course, 2, 3 months a stabilization time is always there. But after that, we can utilize this capacity. But again, this all will depend upon the capacity booking, if at all, that is done till that time. And also, the more volume which is coming because we have hope that more volume will come as we have already mentioned that our 27 million tonne volume will be coming next year -- this year. So I think kitty will be to our terminal also. So if that volume continues and with a growth of 10%, 15%, that's certainly our 5 MMTPA will be utilized to a great extent. And however, I just tell you that utilization of the terminal -- other terminal is very miniscule. Some terminals are operating at 35%, 20%, 30%. So ours is a terminal, which is utilized maximum. So whatever will be the capacity, utilization level of our terminal will be higher. And once the capacities are also booked, then it will further add to our volume consistently over a period of time. But right now, it is very difficult to just give a forecast that how much will be the volume process during that. But it will be available than only it will be processed, because unless and until infrastructure is laid, we cannot expect to utilize it. So we have to keep it ready, and then we have to see that volumes are coming there or not. And also simultaneously, if possible, book the capacity, whatever extent possible.

The other question around Kochi Bangalore?

Well, Kochi-Bangalore pipeline is, of course, as you know, that this Kochi-Bangalore pipeline only 250-kilometer stretch was remaining. And it is from Coimbatore to Krishnagiri of 250 kilometers. So that part is also under construction. And as it is understood that this was to be completed by this year-end. And it has also come under this PRAGATI of PMO. So it is being monitored at PMO also that how is the progress of this pipeline. So we hope that it should be completed by this year. If not possible, then maybe next year by March '25, it should come. So this is the expectation. But work is going on, and let us see what happens at that point of time. And utilization, of course, if that is connected, will be very high because as you know, that than Kochi will be connected to the National Gas Grid. Once the terminal is connected to National Gas Grid, then we can swab the gas and use it anywhere. So in the gas case, we can use, let's say, some city gas distribution companies are coming in that area. And domestic gas availability in Southern India and near Kochi is very poor or negligible. So naturally, through swapping arrangement, gas can be supplied to those CGD customers there and once it is connected to National Gas Grid. And that will ramp up the utilization level of our Kochi terminal. And moreover, there's a good news that more and more gas is being used through tankers. And this is something which is really encouraging because if you look at the loading of the customers to tankers to this terminal of Kochi, last year, we have loaded around 2,230 tanks -- tankers. And 1 tanker have around 17 MT of gas. So there's a scope for uses of wear through tankers also because our pipeline is not everywhere. So in Southern India, we are having a possibility that many of the cases, gas will be supplied through tankers. So last year, it was only 1,500 tankers we have loaded. This year, it is 2,200. So almost 50% hike is there in the loading of LNG tankers in that area. So this is one mode of enhancing the consumption. And we hope that after city gas distribution companies will lay the network there, they will utilize it because it can be flat with domestic gas also. And this sorting arrangement can be made and then it can be supplied to these CGD entities.

Very helpful, sir. One question on the cash balance. So this continues to build. So including the investment that you are referring to [indiscernible] we are almost close to INR 9,000 crores. So we think this kind of -- I mean, also, we will be adding a good amount of free cash flow. So do we think we need this kind of a cash position to fund the CapEx program? Or we think about higher payout option?

We are actually expecting that there will be CapEx, and that's why we have been keeping it. And whatever the cash balance, we are seeing INR 9,000 crores is on the higher side because it is on last date of the quarter, 31 March. But in fact, there has been a liability of INR 2,600 crore. So we have to pay that. So around average cash is around INR 7,000 crores. It's not INR 9,000 crore average, because that is the amount we have to pay to the suppliers. So that's why it is only on that day, it has shown that it is higher. But normally, average cash is INR 7,000 crore. But as far as the project is concerned, we have a petrochemical project, for which we have to fund a 70-30 ratio of equity is 30%. So almost INR 6,000 crores, maybe that we may have to spend through cash. And balance, you will be getting it from the debts from the lenders. And perhaps that is the ratio we have to maintain. And we are keeping the cash with us for the CapEx plan only.

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

Can you hear me?

Yes. Yes. Yes. We can hear you.

Just a clarification on the Use or Pay receivables and the provision you are making. So whatever you made so far, you adjusted for the INR 610 crores out of your receivable. It's about 25%, right? That's around INR 1,200 crores of receivables. So on the balance, which you have not provided for, do we assume that you have high confidence of either adjusting into the bank guarantee, or will be made up by the customers give you external volumes in future. Is that a fair understanding?

Yes. Yes. Yes. But the only thing -- yes, you complete your question, then I will tell you.

Yes. So that's on the UoP provision. Second thing is if you're looking at the question on competition. You are planning this Gopalpur terminal and Dhamra terminal is already up and running, and there has been some capacity booking. So in terms of your own assessment once Dhamra fully booked, how do you see the time to ramp up your Gopalpur terminal whether it's FSRU or the land bay. What is your sense in terms of the future demand outlook? And what the kind of confidence you have in terms of going ahead with that part, given that Dhamra is fairly close by?

No, it's all right. But only thing first question is regarding new Use or Pay charges, you are asking?

Yes.

So I will tell you that total Use or Pay charges, we have put for the calendar year 2021 was INR 379 crore and for the calendar year 2022, it was INR 844 crores. And these 2 years together make it to INR 1,222 crore, out of which we have already made a provision of INR 354 crore. So this is a total provision till date we have made out of it. And the INR 610 crores, which have been, in fact, booked as Use or Pay charges in current financial year of 2023, '24. There is no as such arrangement for that, that we have to book some 20%, 50% of provision. But after 1-year, if they do, then we will have to make the provision. But we are not making any arrangement right now. We are expecting that this particular amount should be paid by the customers. And possibly, there will not be a requirement of any extension of the time period for utilization for bringing more cargoes like we have done for '21/'22 because that was a standalone arrangement for these 2 years only. And that too, due to this COVID period, it has been '21, and '22 has been the Russia-Ukraine war, which has impacted the incoming cargoes being the prices were abnormally high. So that was the reason we have considered those things. But '23, we have not done anything so far. So we expect that INR 610 crores will be recovered. So this is regarding...

On the -- I understand the numbers. So you have made some provision on the INR 1,200 crores. So the balance is still open as receivable. So I'm just trying to understand if, what is the kind of confidence you have in terms of recovering that balance around -- which is not provided for INR 900 crores?

No. No. It will be recovered because we have received the bank guarantee for this INR 379 crores and INR 844 crores. And they have even given time till December '24, to bring additional cargoes equivalent to the volume they have departed in 2021 calendar year. If they don't bring by December '24 for the volume defaulted in 2021 calendar year, then we -- either they will make the payment for that Use or Pay charges of INR 379 crores, or we shall encash the bank guarantee. The first thing is clear. Second is 2022 calendar year of Use or Pay charges of INR 844 crores. For that also, we have received the bank guarantees. If they bring volume till December 2025, it's fine. If they don't bring, they will have to pay the payment, make the payment, and we otherwise, we shall encash the bank guarantee. So our Use or Pay charges for calendar year '21 and '22 are INR 1,222 crores is secured against the bank guarantee. So there is a surety of the payment being received, okay. And for this year, which has been booked in 2023 calendar year, INR 610 crores. There is no arrangement. We still are pursuing the customers that they should make the payment. So entire INR 1,222 crores is secured. This is what I want to convey to you, all of you, that there is no risk as such that we will have to make a provision and then it will not be paid because we have bank guarantee. Still, we are making provisions as a -- means accounting prudence.

Sir, and the question on the Gopalpur terminal competition from Dhamra...

Yes.Second question is regarding the Gopalpur terminal. So this is -- I would like to tell you that the consumption of gas is increasing in the country. And if you know that this eastern part of India, is -- was not having any pipeline connectivity. But now after this pipeline, Jagdishpur-Haldia-Bokaro-Dhamra Pipeline coming up. Our terminal, Gopalpur terminal, is located hardly 40 kilometers away from this pipeline. So there is a possibility that we will be able to utilize, and we will try to get the capacities booked in Gopalpur terminal as we have done in Dahej. So that also, we are making effort with the customers. And as you are saying that what is a prospect. So once we lay the infrastructure, we see, make a due diligence what other industry and mining industries there and a lot of dumper, tippers and cranes are used in such mines. So there's a possibility of LNG being used as transport fuel in that particular region. And also other industries are there, which is coming up. So it will be utilized. And more -- one more thing is there that if you look at, say, so the customer is located in Dhamra region or [ Dabhol ] region, then it will largely today to take gas from the Dahej from Dabhol to that particular area of Gopalpur. Because then the tariff charge will be of Zone 3 of INR 114. So even for the other suppliers of gas, like GAIL, IOCL, whomsoever is there, it will be prudent to use gas from Gopalpur terminal because that will fall in Zone 1 and tariffs will be hardly INR 40 per MMBtu. Through swapping arrangement, that terminal can be used. So whatever gas they are having, supposed GAIL has some gas in the Dahej terminal, they can take it from Gopalpur and give that gas back to us, and that gas will be supplied from Gopalpur to customer of GAIL or any IOCL or BPCL. So that swapping arrangement will also help us in further utilization of Gopalpur terminal. So that's what I'm saying. It's not only us that who has to sell the gas or book the capacity, capacity of course, will be booked to the extent possible. But then they will have the comfort customers, consumers will have to comfort that at least they'll be charged Zone 1 tariff if it is supplied from Gopalpur. So what I'm saying that I'm not commenting on Dhamra capacity book, of course, they have booked capacity. But we have ample chance there because a lot of CGD entities are coming up in that area. And of course, into 3, 4 years, they should be ready. So I think that 1 area will also have some -- it will also drive us for more consumption of gas in that region. So -- and moreover, LNG, as I said, the LNG can be used as transport fuel in that region, even for the mining equipment and machinery and transport vehicles. So I think that is the thing we are keeping in mind. And it's always -- when something new is done, it is always apprehended that how it will run. When Dahej was first time, in fact, established in 2004. Then also a lot of apprehension was there, how terminal will run. But everything is runs, because now the Government of India policy is very clear. They have to increase the share of natural gas from 6% to 15%. And 6% to 15% means that fourfold increase has to be done from the current level of consumption of gas. And that is not possible -- that is possible only if we increase the volume of imported gas because domestic gas availability is not available to that extent. So all these things run on these things that we have anticipation, and more and more customers would be coming in that region. So it's not that Dhamra will not run, Dhamra will also run, and we will also run. So I don't see any apprehension in proper utilization of Gopalpur terminal, it will be utilized. But we are making efforts with our customers for booking the capacity also in Gopalpur terminal.

Understood. Sir, just one last bookkeeping question. Can you repeat the inventory loss and the any trading gain or loss?

We have told you that this quarter, we have incurred an inventory loss of INR 107 crores and trading gain in this quarter was INR 14 crore.

Okay, sir. Wish you all the best.

Ladies and gentlemen, due to time constraint, that was the last question for today's conference call. I would like to hand the conference over to the management for closing comments.

Thank you very much. And in fact, I really appreciate all of you that you have all raised very relevant questions. And of course, whatever things have been pointed out or whatever has been suggested, we always keep in mind that what is the impression of the investors and analysts. And of course, we do the best possible thing. As you know that our constant effort is there, that we increase the volume throughput, and which is increasing also. And only thing you have to have trust on us because what we are doing best possible thing we are doing. And this is evident from the market also, which has increased substantially. And I guess we want that you have to repose trust in us and will continue to perform better in future also. And as far as the competition is concerned, I again say that there is no competition. Our terminal will continue to run even better than what it has been done now, and perhaps, it will further improve in the future because overall consumption of gas is going to increase in future. So keeping all this in mind, our future is bright, and we hope to maintain our growth trajectory in future also. And this is my perception that will perform better in the future than what we have done this time now. Thank you very much.

On behalf of PhillipCapital (India) Private Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.