Adani Total Gas Ltd

NSE:ATGL

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Adani Total Gas Limited Q1 FY '23 Earnings Conference Call hosted by Antique Stockbroking Ltd. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking Ltd. Thank you. And over to you, sir.

[Varatharajan Sivasankaran, analyst]

Thank you. Good evening, everyone. It's my pleasure to welcome all the participants to this first quarter FY '23 earnings conference call of Adani Total Gas Limited. We have with us the senior management of Adani Total Gas represented by Mr. Suresh Manglani, CEO; Mr. Parag Parikh, CFO; and Mr. Priyansh Shah, Head of IR. Welcome to this call, sir, and welcome all the participants. Over to you for the initial remarks.

[Suresh Manglani, executive]

Good evening, everybody. Thanks, Varatharajan. Let me at outset extend a very hearty welcome to all our investors, analysts and [ fund house ] friends for taking out their time and participating in today's call on ATGL's Q1 FY '23 results. As we have been stating at ATGL, we adhere to the highest safety standards and inculcate a strong safety culture as safety is a precondition to work at ATGL. This helps us to build safe and reliable CGD network across India.

With our continued efforts on training to all our employees and contractors, partners and their employees, ATGL has continued its track record of a 0 fatality, and in this quarter, even a 0 injury. Board of Directors of the company met yesterday -- today and approved the fourth quarter results -- approved the first quarter results. This quarter has been a challenging time for the CGD sector where we have seen a significant rise in input cost due to several factors. We could see the geopolitical situation internationally. We also are seeing countries after countries in European Union or other countries, they are rushing to store more and more gas for a safe winter.

We are also seeing increase in the domestic gas prices. APM gas prices also has gone up. Besides APM price going up, which has now become UBP, unified best price, there is a shortfall in supply of APM gas to the CGD industry. So those are all challenges we are trying to overcome.

We have been conscious on passing on to our consumers and have taken a deliberated approach in doing the same so as to protect our consumers from sudden price shocks or increases. So basically, at Adani Total Gas, we have always been maintaining this policy that while we will be facing this volatility in the gas prices, as far as end consumer is concerned, we will ensure that we calibrate it in a manner that we see consumers' affordability as well. We also keep in mind alternate fuel prices. So keeping all those aspects we have been passing through the prices in the phased manner, even if had some cost on our margins.

At ATGL, the focus, as we have been narrating in every call in the results that our focus has been to continue to accelerate our infrastructure development. Now we have 33 geographical areas with 95 districts. So our responsibility has increased, and that's what we are doing continually. But in this quarter, one of the milestones which we achieved is crossing 6 lakh CNG consumer mark. We added close to 33,000 new homes on a pipe natural gas.

We also added 209 new businesses, industries, commercial, smaller and larger commercial consumers, which put together are making our numbers from crossing the 6 lakhs. We also set up 15 new CNG station, which has now taken total number to 349 as on 30th June, 2022.

One of the aspects which I have been restating every call is that while we are focusing and developing CNG station, we are also emphasizing to our teams to develop more and more CODO, Company Owned Dealer Operated, or a DODO, Dealer Owned Dealer Operated stations. And I'm very happy to inform you all that in 349, we have 65 now full branded Adani Total stations across the country. We hope to increase these numbers significantly in the future.

On the pipeline side, we have laid close to 100 kilometers of a steel pipeline in this quarter. Also, we laid over 250 kilometers of [ MBP ] pipeline. So almost 3 kilometers of a pipeline has been laid every day in ATGL. That's the kind of a focus we are putting on developing infrastructure. The backbone is one, the last mile connectivity, [ MBP ], the stations, the home connection, the connection to the businesses.

Coming to our volume side. Overall, our volume stood at 183 MMSCM, which is 31% higher than on a year-on-year basis as compared to the same quarter last year. Our CNG volume grew significantly as compared to last year by 61% at 109 MMSCM. PNG volume grew only 3% because there was supply constraints from supplier and from our side consequentially to our industrial consumers.

On the financial front, let me brief you that the revenue for this quarter was INR 1,110 crores. There was a significant increase in the revenue as compared to the last quarter, the same year, primarily because of the price rise which took place by passing through some of the gas costs which we have done. There has been a significant upside on the gas cost and which we need to pass through and that would cause the prices higher. While there was a 31% increase in the volume as compared to the last year, the EBITDA grew by 6%. That reflects our calibrated approach that volume goes up by 31%, EBITDA only has gone up 6%. And EBITDA for this quarter was INR 228 crores. Profit before tax and profit after tax has remained on a similar level as last year, which means INR 185 crores profit before tax, INR 138 crores profit after tax for the quarter Q1 '23.

Now despite, as I stated, rise in the volume significantly, but due to the unprecedented increase in the gas cost, we were able to sustain our profitability at the normal level. ATGL continues to have a focused approach on sustainability front. So basically, our growth has been to develop ATGL as a holistic personification. So besides focusing on our infra number development, on our business operations, on project execution, cost optimization, we are also driving on sustainability part.

We have launched a Greenmosphere. There's a complete detail we have provided on our website. It's a unique initiative to develop a low-carbon society in all the GAs where we work. So we are -- under this initiative, we are planting saplings. In this quarter, we have planted 4,000 additional saplings. We have also continued our program on solarization of our assets. So this time, we have solarized 36 locations and put together 650-kilowatt of solar power is being generated by our solarized assets. While our offices of ATGL have been certified by CII as a single-use plastic free solutions. Over 60% of our vehicles with the trucks which we are using for carrying the CNG caskets to -- from mother to daughter, 60% of those fleet is now on CNG, and we hope to touch the mark of 100% soon in the future. Our focus is very clear on ESG part. We are strengthening each component of ESG, environment, social and governance.

Friends, despite turbulent times ahead, I am confident that with the continued support from all the stakeholders, government, in particular, and motivated team, Adani Total Gas Limited, the journey ahead is going to be much more exciting and successful. I would like to acknowledge and be thankful the role played by our shareholders, consumers, dealers, suppliers, business partners, investors, and all the stakeholders who are associated with the Adani Total Gas for their trust and continued support. Thank you very much, and we will be very happy to take your questions.

[Operator]

[Operator Instructions] The first question is from the line of Sabri Hazarika from Emkay Global.

[Sabri Hazarika, analyst]

Congratulations for a good set of numbers. So sir, am I audible?

[Suresh Manglani, executive]

Yes, yes, please go ahead.

[Sabri Hazarika, analyst]

Yes. So of course, like your margins have been quite strong during Q1, considering the challenges. But I just wanted to know that gas costs are continuously rising and right now, if you look -- I'm not sure about you, but if I look at Mumbai itself, I think CNG prices have reached almost INR 86 per kg right now. And going ahead, if there is another round of APM gas price hike and followed by a winter level spike in spot LNG prices, then there's a possibility that CNG may become as costly as petrol itself. So looking at such a scenario, what do you think could be the viable solution even if the government could possibly may be thinking something about it? What do you think could be the way out from this gas cost challenge which the sector is facing right now?

[Suresh Manglani, executive]

So Hazarika first of all, I must compliment you. The first question itself will answer, I think many of the viewers who are on the call. I very pertinent and very well said by you for all of us to answer. And your question contains the challenges which are there with CGD industry. And in fact, I stated that industry is passing through challenges. It's not only CNG, but oil and gas as a whole, not only in India, but across the world. You are absolutely right, the prices are going up and coming closer and closer to the liquid fuel prices.

You said INR 86 Mumbai. Yes, Mumbai had raised the prices now over INR 6 to INR 86. One other thing, as I stated that that's the challenge we also face that how much to pass through. So that is where we calibrate. While Mumbai increased INR 6, so far, we only increased INR 3.48 in Ahmedabad. So that is where we do then -- we do calibration. We are also same passing through the challenges that October, as you stated, if things continue the way they are continuing, APM price is likely to go up, HPHT prices is going to go up. Then we are seeing R-LNG prices also going up. But we also know that all the authorities and stakeholders are conscious.

The CGD program is a part of a very strong vision of the government of India and the honorable Prime Minister himself. That's 6.5% of our natural gas share has to go to 15%. I think in the whole journey, CGD is going to play a significant role. The pain which our consumers are facing because of the increase in the price is now being known and everybody has understood. Further this increase would, as you said, will surpass the CNG prices to liquid fuel, which industry is conscious of not moving forward.

So we are all working together as an industry with all the stakeholders. And we are hopeful that we would be able to overcome this critical part of not burdening further the customer and ensuring that the growth part, which has been set as a part of an agenda of the government continues the way momentum has built up. We just see for the last few months, how many stations have been added. Today, we are close to 4,500 stations. 2 years back, it was only 1,000 or 3 years back, something. I think there's a huge momentum and we see everywhere that momentum building is being promoted and supported.

So while what you see and we share the same thing that there are prices rises are again expected. But we are sure that there will be solutions coming around to make sure that consumer interest is kept and the larger public interest is protected. That's where I will -- I hope I've given you the answer in that sense, challenges are there. But at the same time, industry together is working to find the solution and making sure that we continue to grow, and we continue to protect the consumer interest.

If you have a supplementary question, please ask, don't go unsatisfied.

[Sabri Hazarika, analyst]

Yes, I mean, of course, not I'll not hazard a guess on the steps, but definitely that everybody is coming together is heartening to know. Secondly, sir, as a bookkeeping question, despite a sharp increase in APM gas prices, your blended gas cost has declined sequentially. That is from Q4 to Q1. So can you give us some more light on this?

[Suresh Manglani, executive]

Yes, yes. So the 2 things you will find getting more and more efficient, and we hope we continue to sustain in future, even the turbulent times we try -- one is we have very strong support of our partner, Total, that we do a good care -- so it is not necessary we buy from them, but we at least know how do we develop a strategy. What source we should buy, what tenure we should buy, from where to buy at least that kind of expertise we get access immediately. So I think it's a mix of a guess.

We have been developing various sources. And during that period, also we could buy some [ NRA of ] gas, we could buy some JCC gas. So those indexes -- indices have helped us. And there was some increase, if you see what was being expected, the shortfall. There was some allocation increase in the APM that reduces our shortfall. So put together, since APM blended volume came a little more. Put together, we saw there was an efficiency on the gas side. We could certainly provide more and more detail, but you will find in our investor presentation as well.

And the other side, which because we know that we have these responsibilities as a part of Adani Group and TotalEnergies company, that we should pass as less as possible to the consumer. We have undertaken a major initiative on the cost optimization, as of CapEx and OpEx book. And I'm sure, since you are keeping so updated, you will see our numbers, volume versus the cost, et cetera, you will certainly find there is of course, optimization happening, which is getting benefited to the consumer as well as to our profitability.

[Operator]

[Operator Instructions] The next question is from the line of Kirtan Mehta from BOB Capital Markets.

[Kirtan Mehta, analyst]

Just to tell us part of a -- what are the challenges now the APM gas is in supply is roughly 10% to 12% basically on the spot basis. How do you see that this converted into some...

[Suresh Manglani, executive]

Sorry, your voice is not clear from your line. Please check.

[Kirtan Mehta, analyst]

Are you able to hear me?

[Suresh Manglani, executive]

Please go ahead. We are able to -- at least I'm able to make out. So go ahead, if you are able to be in a better place, it's okay. Otherwise go ahead. We'll do.

[Kirtan Mehta, analyst]

Yes. The question was basically that the -- currently the 10% to 12% of the priority sector volume is sourced by GAIL on a spot basis. How are your discussions forgetting that GAIL for any reason switching this volume from a spot basis to some sort of a medium-term volume linkage, of which could reduce the burden of the spot prices?

[Suresh Manglani, executive]

Yes. This is the only question or any other question, Kirtan?

[Kirtan Mehta, analyst]

Yes.

[Suresh Manglani, executive]

Okay. I think your connectivity isn't too good but I understood the question. But in today's the -- earlier we used to call APM, now we call it the UBP, unified gas price. There is a blended price, which also includes the shortfall being met through the spot LNG by GAIL. And I think your question was, this is causing price a rise significantly. And what is that going on in the future? I think if I understood your question. So let me respond, and you can raise the supplementary question.

If you heard me correctly in the answer which I gave in the first question which Mr. Hazarika raised, I said the same thing. When you see, apparently it looks like prices are going up. The shortfall goes up, GAIL has more shortfall, our LNG spot prices, it again hurts our gas cost and consequencing price rise. And that is what I was saying that now all the industry players as well as the authorities have ceased on this part. That this -- if we further do the injury to this part, there would be an issue of CNG prices going beyond liquid and causing a demand destruction.

So I think all of us we are engaged together. There is a lot of discussion and work is going on. We are hopeful. We are hopeful that we will find a solution which wins the customer. It's the customer win, not the industry win is what we are looking at.

And that's what we are appraising the authorities, we are appraising the GAIL and everybody. And they are also conscious because they will see demand destruction. So nobody wants that to happen. It's a strong agenda that CNG has to grow. So I think GAIL, we have to give some more time. All of us, we have ceased.

We are also quite conscious that this has to be done on the topmost priority. And the whole work is going on to see whether we bring some solution. And we will keep you posted as we keep giving you the investors results which comes through. And next time, again, you'll see some more news will be coming which will positive for the sector.

[Parag Parikh, executive]

If I may add, I think the good part over the last few quarters, one of the challenges that the industry was facing was on the APM shortfall. If you notice as much as in our results, that was one of the reasons why our margins had gone down. I think the good part is over this quarter, the shortfall at least has been made up. So to that extent, shortfall has reduced. Now it is more about the price at which the shortfall is being supplied at.

[Suresh Manglani, executive]

I hope that answers you, Kirtan?

[Kirtan Mehta, analyst]

Yes, it does give us sort of a directional answer where -- how this solution could be evolved. But do you see, as a part of the solution, one of the proposals to sort of check the APM price itself, which could sort of lower the impact on the consumer? Or that's not under consideration at all?

[Suresh Manglani, executive]

So as I said, you see, when we have an engagement which are very constructive, all the options what we have suggested, what government has suggested, what GAIL has suggested will be on the table to discuss. And it will not be clear on my part to dwell on one particular option, whether it is there or not there. But I think all of us are the industry players. We know what solutions could help the consumer to continue to use the CNG. I'm sure we'll find some good solution, along with the industry and the government. But finally, we continue to maintain the momentum when we come and answer your question in the next quarter.

[Kirtan Mehta, analyst]

Sure. One more question on the demand destruction that you were mentioning about. So have you seen any signs of going down on the addition of the new vehicles in the same geographies?

[Suresh Manglani, executive]

Currently, it is too early because current momentum is continuing. OEMs are continuously coming on CNG vehicles. Because everybody is feeling this is kind of a temporary storm, which is coming and it will go away. So currently, we are not seeing the demand destruction in that sense, as you saw the number which we gave, 61% increase in the CNG volume vis-à-vis last year. So volume buildup is going on. Infrastructure is growing.

We are not -- we are continuously developing more and more station. You saw in this quarter, we added 15 more. In fact, 6 DODO and CODO, which gives you the comfort that our commitment continues. Because if we're developing DODOs and CODOs, which a larger investment, our full branded stations. So I think it is little too early. If this situation continues for a very long time, yes, then consumer may think. But currently, everybody is upbeat. And it's still even our price, which we are offering provides a significant savings vis-à-vis petrol. It is not that we have crossed -- still it must be around 35% saving vis-à-vis the petrol today if you do the mileage-based conversion.

[Kirtan Mehta, analyst]

Right. And just one more sort of a general question. How do you see the diesel-related conversions coming through? There has been a bit of a momentum pick up over the last couple of quarters. So is it sustaining? Is it increasing? How are you seeing those conversions?

[Suresh Manglani, executive]

No, no. It is continuing, Kirtan. As I said, consumers who have planned the conversion, they are continuing because they are sensing very clearly that we are working on their interest. We are calibrating the prices. And they know that the moment we get an opportunity, we will, again, ensure that we moderate the prices. So consumers have already -- in fact, when I'm talking to you today, we saw a truck converting in the [ south of the ] GA.

So convergence are happening. Currently, I don't see that sentiment where certainly people are deciding not to go for a CNG. CNG is still the fuel which is continuously being used and opted by the consumer as well as OEMs. Is that okay now, Kirtan?

[Operator]

[Operator Instructions] The next question is from the line of [ Kishan Mundhra from Antique Stock Broking. ]

[Unknown Analyst]

Sir, first, a quick question or rather a small clarification. Sir, there was a news item which said recently that the government is exploring moving some gas allocation from power sector to the CGD sector. So are you aware of any developments on that front?

[Suresh Manglani, executive]

No. Actually, I wouldn't be able to say except that as I said in the first 2 questions which I answered is that everyone is conscious of these challenges, which are passing through entire oil and gas industry that gas prices have gone up, not because of India's policy but because of the geopolitical situation. Various options are being looked at, that how do we bring benefit or the relief for the consumer. I think in that sense, we will keep reading some news article, whether it's from power to here or some other options. My request would be that we wait for some more time to see a concrete proposal on optimization of gas prices and also calibration of our prices to the consumers.

[Unknown Analyst]

Okay. Understood. So in that context, have you made any changes to your CapEx plan? Are you trying to hold back until you get more clarification? Or you continuing with your [ work ].

[Suresh Manglani, executive]

No, Kishan. As I said, when our consumers are not changing plan, how do we change our plan? Because we are companies who have to have a commitment and the vision very clear about the business. So today, we are fully committed. Our investment is rolling out as we have planned. We see a very good future of CNG as well as piped natural gas. We are more than confident that we will ultimately provide a good saving to the consumers as today. Also, we are providing 30% to 35% saving vis-à-vis petrol. We are sure that we will be providing good savings on alternate fuels. So there is no going back on the CapEx plan currently. Any plans for us to stop or get out to reduce the CapEx plan.

[Unknown Analyst]

Understood. And any initial discussions that you may be having with, let us say, [ CGD ] operators because what we had seen that in the first half -- first half of this year, and in fact, last year as well, [ DG ] conversions had picked up massively in the country. So any like doubt in their minds now? I mean do you see possibly slowing down in the near term?

[Suresh Manglani, executive]

No, actually. In fact, if you see as far as Adani Total Gas plants are there, we, in fact, do a lot of marketing intervention or the business development intervention of providing several incentives, promotional schemes to convert from a [ MS ] or a [ DG ] to the CNG, so that they payback improves. So while on the pricing side, we will be constrained to pass on some price rise because of the increase in the gas cost.

On the other side, from a longer-term perspective, so the consumer base goes up and momentum is sustained. In fact, several schemes are run, several partnerships are being developed with OEMs or dealers or auto dealers to continue to maintain the growth of a CNG conversion. And we are currently at least not sensing a reduction in the conversion.

[Operator]

[Operator Instructions]

[Varatharajan Sivasankaran, analyst]

I just had one question. This is Varatharajan. Sir, in general like Kishan was pointing out about the CNG conversion. He has written a note also on that particular issue [indiscernible]. What I was witnessing was that a significant jump in the OEM CNG registration, CNG registrations over the last 8 to 10 months across the country. Specifically, we did that where new data coming for Mumbai, Delhi and Gujarat as a state.

Now what we are actually wondering was that like what kind of price arbitrage, I mean, what kind of price arbitration as well as in terms of ownership cost per se, what is the differential and what would actually like now be the threshold level which would actually drive the CNG -- fleet operators actually prefer CNG over diesel? I mean, what kind of tonnage is like they normally do prefer? Are we looking at even heavy vehicles moving towards that?

[Suresh Manglani, executive]

See, Varatharajan, actually, it is very differently -- is applicable for different people. It all depends upon which CV we are talking, what mileage per day kilometer he is going to be running the vehicle. Let's say if somebody is running 200 to 300 kilometers per day versus somebody 50 kilometers, the payback and his calculation will be very different. But on an average, I think people at commercial vehicle basis 18 months to 2 years to 2.5 years, but still they will look for conversion.

While a taxi cab owner, he looks for the 12 to 18 months because he doesn't have much patience. He wants higher savings. But the commercial vehicle owner definitely know that their vehicle life is much higher. Their business is more sustainable. They would like to have a little longer payback is okay, while everybody wishes to have [ less a long ] payback. So people who run more and more mileage every day or a month, they will still be looking for conversion of the CNG even if it is a smaller saving versus the people who only make 30, 40, 50 kilometers a day,[ then it's economical ]. Everybody's case will be different. But 2 to 2.5 years, probably 18 to 2 years payback will attract the consumer to still convert on the CNG.

[Varatharajan Sivasankaran, analyst]

And have you also like physically, of course, witnessed at this kind a jump in the CNG in your outlook?

[Suresh Manglani, executive]

See, we do see a kind of a sentiment that people are now looking for our support because they believe that we are a long-term player. We are building infrastructure for the generation. So they believe that we should also put some skin in the game on their conversion. So this is a normal expectation of a consumer of a commercial vehicle.

So we do do some marketing intervention depending on what number of vehicles somebody is ready to convert. We are very focused at Adani Group that if it is making sense for us to give some support of a conversion, we are willing to do that. We are definitely willing to that because we believe that long-term interest is going to be protected if we have more and more conversion at this early stage, so where we can utilize our CNG station better rather than allowing consumers to convert at their own wish. This currently requires a little more marketing push and a business development push. And that's what our teams are doing.

Thank you. Any more questions?

[Operator]

We have one more question in the queue from [ Harsh M from Emkay Global. ]

[Unknown Analyst]

So basically, I had 2 questions. One was regarding -- would you be able to tell us what is the kind of slope at which term contracts are being -- term LNG contracts are being undertaken at present on an approximate range?

[Parag Parikh, executive]

Yes. Okay. And second question?

[Unknown Analyst]

What is the proportion of term contracts out of our volume mix, if you can give an approximate number to that?

[Suresh Manglani, executive]

Parag like to answer?

[Parag Parikh, executive]

So as far as our overall volumes are concerned, on the term contract, if you notice today, we are getting APM as far as CNG and the domestic segment of CNG is concerned. This itself comprises almost close to 70% -- 65% to 70% of our overall volume. It is in the balance 30% where we are entering into a variety of term contracts. Some of them are with the local PSU OEM suppliers as well with some private operators like Reliance.

And thirdly, we also have Total as a partner with whom we continue to access as far as supply is concerned. So it is a combination of all these 3 as far as our current term contracts are concerned. At this juncture, we have term contracts, which are almost filled to the brim, which is almost 90% to 95% of our entire volumes including the APM are actually tied up. Yes, these are -- of course, some of them are more shorter-term contracts, and we will relook at entering into longer term over the coming calendar year.

[Unknown Analyst]

Right. And would you be able to put a number to the kind of pricing at which term contracts are being entered? Like not for Adani Total Gas in specific, but...

[Parag Parikh, executive]

The markets today, of course, as you are aware, are quite volatile. And to that extent, there are not many long-term contracts which have been entered into. I think you may want to wait and watch to see at what prices some of these term contracts are being entered. But of course, some of the other domestic tenders also, which are expected to come. And I think that will be a good sort of benchmark for one to know as far as term contracts are concerned. But market currently, of course, as you are aware, globally is quite volatile. And therefore, there is no specific benchmark.

[Operator]

As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

[Suresh Manglani, executive]

Thanks, everyone, for participating [indiscernible].

[Unknown Executive]

Thank you. Thank you, everyone, for participating for the call look forward for any further questions today. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Antique Stockbroking Ltd. that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.