Petronet LNG Limited (PETRONET) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Petronet LNG Q2 FY '26 Earnings Conference Call hosted by IIFL Capital Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Balaji Subramanian from IIFL Capital Services Limited. Thank you, and over to you, sir.

Ladies and gentlemen, good morning, and thank you for joining us on the post 2Q and 1H FY '26 Results Conference Call for Petronet LNG Limited. It's my pleasure to introduce the senior management team of Petronet LNG, who are here with us today to discuss the results. We have Mr. Saurav Mitra, Director Finance and CFO; Mr. Rakesh Chawla, Executive Director, F&A; Mr. Gyanendra Kumar Sharma, GGM and President, Marketing; Mr. Vivek Mittal, GGM and President, Marketing, Mr. Debabrata Satpathy, General Manager, F&A; and Mr. Vikash Maheshwari, Deputy General Manager, F&A. We will begin the call with opening remarks by the management team, and thereafter, we'll open the call for a Q&A session. I would like to now hand over the call to the management to take the proceedings forward. Thank you, and over to you.

Good morning, everyone, and thank you for joining us for Petronet LNG's Q2 FY '26 Conference Call. I am Saurav Mitra, Director Finance and CFO, and I'll be walking you through our financial performance and key highlights for the quarter. So net profit stands at INR 805.75 crores, down 5% year-on-year due to lower LNG volumes. Revenue from operations stood at INR 11,009 crores, down 15% year-on-year. And EBITDA is 1,117 crores with a margin of around 10%. We have also declared 7% (sic) INR 7 per share interim dividend, reflecting our commitment to shareholder returns. So far as capacity utilization is concerned, we have witnessed the highest ever capacity utilization of Kochi terminal in the current quarter, which stands at -- stood at 27%, and Dahej terminal processed 211 TBTU. The expansion activities which are going on of the Dahej terminal is, we'll be adding 5 MMTPA capacity by March 2026. So with these points, I would now like to invite the questions.

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

Just a couple of questions. Firstly, you mentioned Kochi's utilization actually going up in this quarter. Can you first give us some reason in terms of...

You're not audible.

Probal, sorry to interrupt you. Actually, your voice is not audible. It's coming very low.

Is this better?

Yes, it is better now. Please go ahead.

My apologies for that. Sir, I was asking that you mentioned about Kochi's utilization actually improving quite sharply in this quarter. Can you just expand on the reasons for that? That was my first question.

Okay. So I would ask Vivek to please clarify this.

Primarily Kochi refinery, which is the BPCL refinery, they have started now bringing in cargoes also over there. So they have got cargo -- actually, the cargoes came at end of June, and it was taken in this quarter. So primarily, that is the reason. In fact, we are expecting similar trend to continue at Kochi, that BPCL will bring its own cargo under regasification at Kochi also.

And just as a follow-up to that, the final leg of the remaining pipeline for Kochi-Bangalore leg, any sense we can get on where that is? And what are the time lines for commissioning of that?

So we are hoping that within this financial year that the pipeline should get connected to the natural gas grid.

So for FY '27, sir, sustainably speaking, what kind of utilization should we be building in for Kochi? Even a range that you're looking at?

At this point of time, giving a number would be difficult, but we definitely expect improved utilization once the pipeline gets connected. And gradually, once the LNG price has softened, we expect utilization of Kochi terminal in the vicinity -- in fact, in the existing connectivity region also to increase further.

Right. Second question was with respect to Dahej. What we've seen really is in this quarter, the term contracts seem to have reduced, while third-party regas cargoes have actually gone up. Is this purely a function of the way that the prices have been behaving versus term and maybe short term? And secondly, where are we in terms of contract visibility for the expanded capacity since we are now less than 4 months away from the official commissioning of the additional 5 million tonne capacity? Those are the 2 parts that I have.

Okay. So you already have the answer to your first part of the question that pricing trends of long term vis-a-vis the spot is basically the guiding factor. And secondly, coming to your second part of the question, yes, we are closely working with many companies for booking our commitments in the expanded infrastructure.

Got it. Sir, one last question, if I may. Any update you want to share on the petrochemical expansion project?

Yes. Work is going on in full steam. And as notified earlier, we have also awarded all the major long lead item packages. Work has -- civil job has also started on field. That's the major development which I can share with you right now. The work is going on in full steam.

The next question is from the line of Puneet from HSBC.

My first question is with respect to the Gopalpur terminal. If you can also talk about what is the progress there in terms of environmental approvals and any start, et cetera?

Okay. So we have already acquired the land. But as you are all aware of the fact that initially, it was an FSRU, now we have converted into a land-based terminal. So due to this change, the EC has to be resubmitted. And we have resubmitted the EC -- all the details for EC and expecting the clearance soon. So once...

Any time line?

So we have actually given whatever additional information was sought from us. And now it is under process with the concerned authority. It can be as soon as tomorrow or maybe whatever time the authority takes.

Understood. That's helpful. And secondly, if you can also comment on what you're seeing in terms of the new LNG deals, what kind of pricing, some color there given the upcoming supply glut globally?

Okay. Again, Vivek.

You would have also noticed that many Indian companies have gone out in the market and tied up volumes on long-term basis. Most of them have capacity at Dahej terminal, including Torrent, IOC, GAIL, BPCL, GSPC, which in a way is good for Petronet, because then it gives sustainability to our existing business because, of course, based on spot prices, there has been volatility. Some of these capacity holders have not been able to bring the cargoes which they are supposed to. That's point number one. Secondly, going forward, as you rightly mentioned, there is going to be -- I would not say glut, but there is going to be a decent supply of LNG in times to come, specifically end of '27, early 2028, which means that the spot prices could reduce and they should become more affordable to Indian consumers, which in a way helps us in utilization of our terminals. And we always say that we are future ready, in the sense we have capacity available. And once the volumes are available internationally at sustainable prices and affordable prices for Indian market, the utilization of our terminal will see a substantial increase.

And are you also trying to tie up the long-term volumes on your own balance sheet? Or that's not the attempt at this point of time?

That's not right now on the agenda.

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

Now that petchem CapEx is moving full steam as you mentioned, like could you provide the guidance on CapEx for FY '26 and FY '27?

Okay. So FY '26, I think we have already announced in our earlier conference calls that the total CapEx will be around INR 5,000 crores. And obviously, petchem consists of the major share of that INR 5,000 crores CapEx. And going forward, once the project picks up its momentum, definitely, FY '27 will be witnessing the major chunk of the CapEx towards petchem. Right now, I don't think it will be correct on my side to come out with the numbers of FY '27. But surely, I think we'll be able to share more details in the upcoming conference calls.

Sure, sure. Understood. Also on Kochi, you mentioned that 27% was the highest ever utilization. Once the Bangalore-Kochi pipeline is in place and the connectivity is there, how fast can the volume scale up happen? Like is it only -- the bottleneck is only the pipeline or even the contracts with the customers could take a bit long to come through?

No, I think this has already been clarified by Mr. Vivek Mittal. So we are eagerly waiting for the pipeline to get commissioned. The moment it gets commissioned, there will be an uptick in the capacity utilization.

So contracts, you mean to say, are already in place? Or how is it?

Major contracts are already in place. We also have our contract with ExxonMobil, which we are going to start implementing from next financial year.

Okay. Sure. And could you provide the breakup between inventory gain loss, trading gain loss and service cargo for the quarter?

Okay. So Debabrata, if you can, please.

There was no trading gain like last quarter. Inventory gain was INR 41 crores.

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

Just one question on Dahej. You mentioned that the pricing difference led to this kind of lower term volume and higher regas services. But pricing is pretty much stable, right? I think term volume prices is still much cheaper than the spot prices. Or is that something related to scheduling of the cargoes you obviously discussed at the beginning of the year, which led to this lower...

Got your point. Vivek, if you can please...

So you are right that it was primarily because of scheduling. And sometimes what happens that offtakers take higher volume in the previous quarter, which needs to be adjusted in the subsequent quarters. So it is more to do with more of scheduling rather than to do with pricing, I would agree.

Got it. And you mentioned, Vivek, that there is some incremental volume being tied by the IOC, GAIL, GSPC and others, and mentioned that approximately 8 million tonne volume will come largely from the next year. Have the customers mentioned anything that they want to bring that additional -- this amount of volume to Dahej? Or they will use the existing capacity that they have booked with you as a part of that?

As our DF sir mentioned that we are already in discussion with some of the existing capacity holders as well as new capacity holders, so that we ensure that these volumes come at our terminal. So we are already in advanced discussions.

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

So I have a few questions. Firstly, this regas service volumes, so I think 8.25 million tonnes is what has been booked. Can you give us a rough indication as to how much of that would be like spot and how much of that would be term with respect to the offtakers? I know it's not your prerogative, but just to get some color on that to understand the sensitivity.

Each offtaker is a different peculiar situation. It's very difficult to give how much is on term basis. But as we mentioned that many of these offtakers have tied up volumes on long-term basis starting from '26 onwards. So we expect it to be more ratable and sustainable rather than on an intermittent basis. That's all I can say.

But this quarter also, the difference was there between spot and term, but still we were able to do 116 TBTU. So that is in line with that 8 million tonnes, 8.5 million tonnes. So despite the odds, we have been able to like maintain that run rate. Is that right, for this quarter?

Yes, you're right.

Okay. Secondly, this term LNG, when you report for Dahej, so that includes the ExxonMobil part also which comes to Dahej, right, instead of Kochi?

Yes, yes.

Okay. And this is all like priced in at Kochi tariff only, around INR 95?

Yes, you are right.

And once we have this Kochi terminal coming at full capacity, I mean, if the pipeline is ready, then entire Gorgon volumes will go to Kochi, or the same arrangement is likely to continue?

That will depend on offtakers, how they want us to schedule it.

Right. Secondly, this Gorgon second part, so that is exactly on the same terms as the first part, right? 14% slope and it's a DES contract, right? So it's just...

We cannot divulge the commercials.

Right. But it is like this 1.42 only, right? It's not -- I mean, it will be similar to that only, right? Because it was supposed to be an expansion.

We will not -- we will refrain from commenting on this.

Okay. Fair enough. But yesterday, I think there was an article where your MD mentioned that from next year, March, April onwards, it will start with a 0.5 million tonne per annum run rate and scale up to 1.2 million tonne. So we can build that, right?

Yes, yes.

We already have.

Exactly.

Okay, sir. And last question. Once this Kochi utilization goes up, so there will be again a tariff reset, right, to maintain the return profile?

Again, it's a commercial call. We won't be able to share it in this forum. If tariff resetting happens, then we will let you know. But at this point of time, we cannot comment on it.

It's too premature actually.

The next question is from the line of Adarsh Hinduja as an individual investor.

Can you hear me?

Yes, you're audible.

My question was pertaining to delay in the 5 MMTPA expansion. I'm looking at your past conference call transcripts and in October last year, you told it will be completed by March. And in Feb, you said it will take another 4, 5 months. And now you're mentioning March 2026. So if you could comment on this, what's going on, why the delay?

Okay. Okay. I got your point. Yes, we do agree that the initial target was March and then it was shifted to October. But now we are telling end of March FY '26. When I'm talking about March FY '26, it's basically the commissioning of the expanded capacity. And earlier, while we had mentioned March as well as October, that was the mechanical completion. Now yes, still, I would accept that, yes, there has been some delay in this project. There are definite reasons for this delay, and we have already discussed in our earlier conference calls on the reasons for delay. But maybe for the benefit of this gathering, I would like to repeat the reasons. Reason number one, monsoon, and reason number two is Operation Sindoor. So both these factors have played a major role in shifting of the commissioning dates as well as the mechanical completion dates. So these are the 2 major factors. And we are trying to cope up with the setbacks with right earnest and should be able to commission this expanded capacity by March 2026.

So would I be correct in assuming that the mechanical aspect has been completed and we're just awaiting commissioning?

Sorry, you are not audible.

Would I be right in assuming that the construction is completed and you're just awaiting the commissioning?

No, again, you are not audible.

Sorry to interrupt. Adarsh, your voice is coming muffled actually.

One second. What about now? Is it fine?

Yes, it is fine now. Please go ahead.

So I wanted to ask, would I be correct in assuming that mechanical construction is completed and we are just awaiting commissioning?

No, no, no. No. We are still -- we have not yet completed that -- we have not arrived at that stage. But definitely, I can say, we are very close to completing the project mechanically.

Okay. That's great. And what's the total expenditure that's been out there for this?

On?

On the 5 MMTPA expansion, what's the total expenditure?

Okay. Till date?

Yes.

So till date, we have spent around INR 450 crores.

The next question is from the line of Shubham Shukla from Voyager Capital.

Am I audible?

Yes, you're audible. Please go ahead.

I wanted to get some light on the possible PNGRB regasification tariff, which might -- like PNGRB is constantly pushing. Can you shed some light on it?

Okay. Sharma ji, if you can clarify.

Shivam (sic) [ Shubham ], actually, these notifications, you may be aware of, are under challenge. And also, this is not questioning or any regasification tariff as you were asking about. This is all about the registration, okay? So I don't think PLL is under any constraint or anything about the commercials.

Okay, these are not on regasification, but if they're implemented in any way, do we have any quantum that like the amount which can impact on an annual basis to us?

No, not at all. Not at all.

Okay. My second question is like a very broad question. As a country, like the gas consumption growth we are seeing in last 2, 3 years makes me wonder how are we going to achieve the 15% target as the consumption share for the country in the next 4 years from 7-odd percent now?

Basically, 15% is, of course, government of India's ambition, and we are all striving to achieve that. But as we mentioned previously, next 2, 3 years, we are expecting a glut of -- a decent amount of LNG supply to come on stream, which should definitely support increasing share of natural gas in India's energy basket. So if not 15%, we are very hopeful that it will increase from current 7% level to 10%, 11% level.

Okay. And what kind of volume as a country we will be -- like if any numbers you can put, say, at 11% consumption share, what kind of volumes are -- we possibly might be consuming, say, 300 MMTPA or something?

Not MMTPA, 300 MMSCMD, you mean.

MMSCMD. Yes.

Yes, that's 300.