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GAIL (India) Ltd
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Ladies and gentlemen, good day, and welcome to Q3 FY '22 Earnings Conference Call of GAIL India Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Harshavardhan Dole from IIFL Securities Limited. Thank you, and over to you, sir.
Thank you, Reman. Greetings, everyone. On behalf of IIFL Securities, I welcome you all for the third quarter earnings call of GAIL. Before we start the call, I'd like to congratulate GAIL for a stellar performance and would like to introduce the senior management team of GAIL, represented by Mr. Rakesh Kumar Jain, who will be first giving his opening remarks, subsequent to which we can have the floor open for Q&A. Over to you, sir.
Yes. Thank you, Harsha. Good afternoon to you from IIFL and my dear friends from investors and analyst community. And I have with me my senior colleagues, Executive Director of Business Development, Executive Director CSP, Executive Director Petrochemicals, Executive Director Finance, Executive Director International Sourcing. So we have all colleagues available here to answer and other senior friends.So we are thankful to you for showing the keen interest in performance of GAIL. The results for and up to third quarter have earlier been declared today. And I'm sure you must have gone through the results and must be happy with this performance in last quarter in particular and 9 months in general. So I just take a pleasure to state that for end of Q3 2020, GAIL has achieved highest ever turnover, highest ever PBT and highest ever PAT. To give the financial highlights. GAIL achieved gross turnover of INR 25,688 crore in current quarter, which is the Q3, as against INR 21,477 crores in Q2. This is an increase of 20%, and this increase is primarily driven due to higher natural gas price, which is on an average around $1.6 per MMBtu; higher LHC price, which is around INR 12,700 per metric ton; and higher petrochemical prices around INR 7,000 per metric ton. If you see our 9-month basis, GAIL achieved turnover of INR 64,517 crores in financial year 2022 versus INR 41,057 crores during corresponding period in previous year. That is up by 57%. And if we talk of profit before tax, increased to INR 4,308 crore in Q3 financial year 2023 as against INR 3,682 crore in Q2 financial year 2022, increase of 17%, primarily due to improved marketing spread, better prices of petrochemical and LHC and improved operating efficiency in petrochemical and LHC. On 9-month basis, GAIL achieved profit before tax of INR 10,044 crores in financial year 2022 as compared to INR 3,774 crores during corresponding period in the previous year. This is up by 166%. Profit after tax jumped to INR 3,288 crore in Q3 financial year 2022 against INR 2,863 crores in the Q2 of financial year 2022, an increase of 15%. On 9-month basis, GAIL achieved a profit after tax of INR 7,681 crores in financial year 2022 versus INR 2,983 crores during corresponding period in previous year, and it's up by 158%. Coming to performance. If we talk of gas marketing, gas marketing stood at 96.56 MMSCMD in Q3, as compared to 97.72 MMSCMD in Q2 financial year 2022. Gas marketing profit increased from INR 1,073 crores to INR 1,745 crores, mainly due to increased gas marketing spread. And now if we talk of this gas marketing, likely volume in future, if we talk about coming 2 to 3 years, next year, we expect the volume to go up by 5 to 6 MMSCMD at some point of time. But if you compare the -- if you consider the average, it will be around 4 MMSCMD in coming next 2 to 3 years. Coming back to the natural gas transmission. It stood at 114.28 MMSCMD as against 114.32 MMSCMD in Q2 financial year 2022. The capacity utilization remained at 55% in both Q2 and Q3. The gas transmission volume is expected -- if you talk of futuristic things, the gas transmission volume is expected to decrease by 5% to 6% per annum for coming couple of years. And this increase will primarily be driven by increase in supply to Sindri and the upcoming fertilizer plants of JHBDPL. And just to give -- these all customers will be coming on the JHBDPL, that means that the consumer will be paying the tariff of stream pipeline, like HBJ and thereafter JHBDPL. Therefore, the weighted average spread revenue will also be higher as compared to this year. Volume of production stood at 234 TMT in Q3 financial year 2022 as against 216 TMT in Q2 financial year 2022, increase of 8%. The plant is currently running smoothly. And during the current quarter, plant operated at 114% as compared to 106% in Q2. And we are quite confident that plant will be able to achieve its 100% production capacity this year as well. Polymer sales stood at 217 TMT in Q3 financial year 2022 as against 221 TMT in Q2 financial year 2022, the decrease of 2%. So we have witnessed a very good petrochemical prices in the last quarter. And if you talk of average price in last quarter, it is around INR 104,000 per metric ton. We expect that price to remain stable, robust even in near future. The electric sales stood at 275 TMT in Q3 financial year 2022 against 262 TMT in Q2 financial year 2022, increase of 5%. The capacity utilization increased to 77% in Q3 as compared to 74% in Q2 financial year 2022. The price realization in Q3 was up by 26%. There is a significant increase of price in Q3, 26%, as compared to Q2, which led to the increase of -- significant increase in margin of LHC despite increasing input costs. If you remember that input cost increased from $1.79 per MMBtu, we are talking about input prices allocated to LPG segment. Cost of input gas from LSC segment is primarily driven by domestic gas price of April 2022, based on the current formula. We expect the cost of input gas will go up. But considering that the LHC price are at a very good level and where we see the future that are likely to remain at a very good level. Therefore, the pressure on the oil gas not be to that great extent. LPG transmission was 1,057 TMT in Q3 financial year 2022 as against 1,054 TMT. It is almost flat as compared to Q2, 1,057 versus 1,054. And the capacity utilization is 110% in both Q2 and Q3. Coming back to the consolidated financial [Technical Difficulty] year '21. The turnover in Q3 financial year 2022 is INR 26,084 crores versus INR 21,739 crore in Q2 financial year, up by 20%. The profit before tax in Q3 financial year 2022 is INR 4,820 crore versus INR 3,728 crore in Q2 financial year 2022, up by 29%. The PAT in Q3 financial year 2022 is INR 3,781 crores as compared to INR 2,883 crore in Q2 financial year 2022. That is up by 31%. On a 9-month basis, GAIL achieved consolidated turnover, PBT and PAT of INR 65,373 crores, INR 11,088 crores and INR 8,802 crores, respectively, and up by 57% the turnover up by 57%, with PBT up by 146% and PAT up by 141%. Coming back to the cargo details. During the quarter, we have received 22 LNG cargoes [Technical Difficulty], the 14 from Sabine Pass and 8 from BCP. Out of these, only 6 cargoes were sold in overseas market and because of the increased demand we got remaining cargoes to India directly or through destination swaps. GAIL CGD, the profit from GAIL CGD business have increased. Now this is picking up. Now in last quarter, it was INR 9 crores as compared to the Q2 INR 3 crores. GAIL is having infrastructure of 92 CNG stations and approximately 165,000 domestic CNG collections its cumulative CapEx spend is INR 1,000 crores. In the next 2 years, GAIL targets to add over 100 new CNG stations and 2,50,000 new DPNG collections. The Q3 sales is approximate 0.16 MMSCMD, and we expect the sales to grow by 20% in Q4 and is expected to double in next 2 years. And with respect to GAIL Gas, during the quarter 3 of financial year 2022, the gross revenue from operations stood at INR 2,057 crores as against INR 1,478 crore in Q2 financial year 2022, an increase of 39%, mainly driven by increase in volume and average gas price. PBT remained flat at INR 103 crores in Q3 versus INR 105 crore in Q2. The profit also remained almost flat, INR 77 crores as against INR 78 crores in Q2. Gas price increased from 4.99 MMSCMD in Q2 to 6.13 MMSCMD in current quarter, and this mainly has happened because of addition of 1 bulk consumer and increase in CNG and DPNG demand. GAIL Gas, along with its daily subsidiaries has infrastructure of 7,50,000 DPNG collections and 268 CNG stations, GAIL Gas plans to incur a CapEx of around INR 4,000 crores in next 3 years on expansion of network in existing cities, Sonipat, Meerut, Kota, Dewas, [indiscernible] Dabhol Bangalore. And for all the GAs 9th and 10th bidding rounds, the sales volume is expected to grow by approximate 10% per annum over the next 3 years.Now coming back to the CapEx detail. GAIL has achieved over book INR 5,000 crores of CapEx up to December '21, mainly on account of pipeline, petrochemical, CGD projects, operational CapEx, equity contribution and E&P. We have planned to spend approximate INR 7,500 crores in the current financial year and similar amount in financial year '22, '23, and mainly on sides, the petrochemical, CGD and equity. Just to share with you the project performance. On the Pradhan Mantri Urja Ganga, the total commitment is over INR 15,550 crores and the actual CapEx till Q3 financial is INR 12,815 crores. We have been receiving the capital grant from government regularly. And till date, the total capital gross received is INR 4,549 crores as against total grant of INR 5,176 crores. The GAIL, along with JVs executing various pipeline projects, for approximately 7,500 kilometer entailing total cost of approximately INR 37,000 crores. GAIL is executing PP projects at Pata and Usar to a total cost of INR 10,000 crores. The TMT contract and license selection has been done, and the work on project is going on as usual.Just to share a rather just a recent development, the OTPC, GAIL acquired equity stake of 26% in ONGC Tripura Power Company, which owns and operates 726.6 megawatts gas-based combined cycled power plant at Palatana, Tripura. The stake has been acquired from ILFS Group companies for a consideration of INR 319 crores. That's all from my side regarding the overview of performance and projects. The management of the company is available. We would be glad to clarify regarding any questions that you may have. Over to you, Mr. Harsha.
Sure. Thank you. Moderator, can we open the floor for Q&A?
[Operator Instructions] The first question comes from the line of Vishnu Kumar with Spark Capital.
Congrats on a superb set of numbers you have delivered. My first question is on the transmission business, especially if you could just update us on the new fertilizer plants that are coming up? And when do you expect all of the 4, 5 plants that are already there to reach good volume utilization?
Just hold on. So you're talking of the new fertilizer plant, which are coming up.
Yes.
If we talk of HURL Gorakhpur, the pre-commissioning of this plant is in progress. And they are currently drawing 0.1 to 0.2 MMSCMD of RLNG, and we expect commercial production to take place in April by 2022. If you talk of HURL Barauni, again, the gas supply for pre-commissioning started in December 2021. And currently, the plant is drawing 0.1 MMSCMD, and we expect commercial production to take place sometime in October to December 2022. Coming back to HURL Sindri, gas supply for pre-commissioning started in December '21, currently growing almost approximate 0.1 MMSCMD of RLNG. Commercial production expected range in October to December 2022. And these all 3 plants, apart from drawing this transmission around 2.2 MMSCMD, we have a contract for a 1.87 MMSCMD for supply of gases through GAIL.
So is it fair to say this, by October, each plant will be drawing almost close to 1.87 by October to December quarter? All of them will be running closer to that capacity?
Yes, yes, yes. That's what we expect.
Understood, sir. And second question is on the transmission side -- or rather the general SG&A costs for you has gone up to almost INR 1,300 crores. Steadily, it has been increasing about INR 100-odd crores on a quarterly basis. Is this the current run rate going forward? Or if you could just help us understand will that number continue to...
Can you come back again? What is that cost?
The SG&A cost, which you report -- the other expenses, sorry. The other expenses that you report on the P&L, that number.
Just hold on. Give me a moment. The other cost. We'll come back to you. Actually, we are not immediately ready with that.
Got it, sir. And my final question is on the gas usage, the gas usage across various segments. If you could just tell us how much of APM gas is being used at each segment. And just trying to understand because cost is going up.
Each segment by GAIL or by country?
No, no. For GAIL internal consumption, let's say, we are using in the gas transmission in LPG, how much you use the gas, the domestic gas or let's say in petchem, in case of use any domestic gas. And all these individual segments, internal consumption?
Yes, yes, yes. So there is allocation of APM gas to GAIL is for LPG and the fuel consumption and compressors. Okay? And the allocation I will tell you. Allocation, 2.5? Just hold on. So compressor is 1.33. And LPG, it is 1.99 -- 1.92.
Okay. On a steady-state basis, you were using only 1.9 plus 1.3 that's about 3.2 MMSCMD of APM so to this extent we will see cost increase from April?
No, no. One cost is pass-through costs. If we talk of compressor, the fuel consumption cost is passed through, through tariff. So there is no increase which is going to impact GAIL.
Okay. Only on LPG, this 1.9 will...
Yes, coming to the LPG, yes, to the extent the APM price increases, certainly, input cost, as I also said in my initial remarks, the input cost is going to go up. But considering the LPG price currently and likely price increase or likely price scenario in future, it will impact but it is not going to impact significantly.
Got it. Sir, the transmission, we thought whatever tariff is getting reported that will be the number. But you're saying that whatever PNGRB given number, plus incremental cost will also be transferred. Is that the right understanding on the transmission, sir?
Incremental, positive. The tariff for natural gas pipeline are cost plus. So any increase in cost is passed through.
The next question comes from Amit Rustagi with UBS.
Super congratulations for a strong set of numbers. Sir, I have 2 questions, one, relating to your gas marketing. Could you give us an outlook for gas marketing U.S. cargoes? For the next financial year, that how many are you planning to bring in India and how many are you going to sell internationally and what kind of arrangements we have? Because I think one clarity which investors need today is like the volatility in the gas trading business is quite huge. So if we can get confidence that the volatility is reducing, that will be quite helpful for the investors.
Amit, just I want to understand how the volatility is getting addressed by bringing cargo to India?
Sir, because internationally, we understand that the prices are fluctuating versus your Henry Hub prices. And so we really don't know whether you have sold those cargoes at a profit or at a loss. That is one. Second is, if you are selling more volumes in India, my understanding is that it brings quite a lot of stability. So only we will be subject to some basic risk. Because I think in India, you sell the cargoes at an oil linked pricing. And while the cost of the cargoes is linked to the Henry Hub pricing.
Okay. I understand. So I will request the ED, Executive Director, International LNG to just give you the details about the cargo, which we will sell in international market and in local, yes, for the next year.
Yes, for the next year.
Hello, good afternoon. My name is Kaviraj. For a moment, keep volatility aspect aside, okay? So for the reason why we sold LNG cargoes in the international market was that we didn't have commensurate demand in the domestic market. So it was more of a mitigation measure, which we have been undertaking ever since our U.S. volume started physically in early 2018. Okay? But now with time, the domestic tie-up, which we had done with the fertilizer sector, as well as in other sectors, they are slowly getting fructified. So time has come where we feel that the S12 mitigation measure which we undertook is no more required. On the contrary, we have to preserve our every volume, whether it is U.S. or Gazprom or ExxonMobil, we have to preserve it to cater to the Indian market, okay? This is a broad outlook. But at the same time, whatever volume which we have sold under the mitigation measure in the past, that, we'll continue to honor. To put a number or an assessment there are hardly few now, okay? And that commitment was made till March '23 only so far. Anything beyond March '23, I mean, I don't think there is any number. But until March '23, cargoes were sold under a term contract. If I have to broadly quantify these numbers, it will be around 15 to 20 cargoes, okay? This, we have to honor it. So rest, everything is being brought and will be brought to India only henceforth.
Okay. Okay. So that is quite helpful. And sir, when you sell incremental cargoes in India...
Our action plan has nothing to do with the volatility because our ultimate market is India, and we are here to serve Indian market and tie-up has been made and pipeline investment has been made accordingly. So we have to fulfill those obligations.
Yes, sir, really, really good to hear this. Could you tell us that now incrementally, are you able to sign more cargoes, more volumes in long-term contracts from U.S. portfolio in India? And what is the pricing you're looking at? Is it Henry Hub plus or is it still linked to oil?
I'll not be able to specify anything. But yes, there is a mood internally that we have to revisit our demand-supply position because we feel that there is a scope for sourcing additional volume to meet the emerging requirement. But we have not yet finalized, right? How much volume and from how when we have to source it, I mean, we are yet to finalize it because it all depends on how these -- depends on the schedule of the balanced demand fructifying.
Yes. Okay, okay.
Amit...
If you have any opportunity which can give good slope, please let us know.
Amit, what I would like to add to what Kaviraj just said. We will be able to bring most of the cargoes to India as demand is increasing because we have commitment in -- for fertilizer plants. But then we are also with respective answer whether we have planned to source. Let me give one thing, with the -- while we are bringing the cargoes to India, we are creating a space for ourselves that there is -- the space which we were occupying in international market, we were marketing certain volumes. So apart from the sourcing of cargoes for Indian market, perhaps we can also fill that space of buying cargoes to maybe several international market. So that is also being analyzed internally.
Okay. Okay. Sir, got it. That would be quite an interesting move. And sir, my second question relates to the CGD sector. So GAIL is one of the largest players in city gas distribution. But now of late, we are seeing that some gas allocation issues being raised for the priority sector. How do you think that these things will settle down? Because incrementally, we are seeing more and more volume growth. Like you're seeing yourself, GAIL Gas is growing pretty fast, your own CGDs, including MGL, IGL are growing pretty fast. But they are not getting commensurate APM supplies which they were supposed to get. And hence, their cost has gone up and there will be further cost pressures from April when the APM prices go up. So do you think that these businesses would still remain that much profitable as they were? And would government face -- give the similar support which they were providing earlier?
Amit, there is no -- because this question is based on a hypothesis, what will happen in future. And now going by the hypothesis, you have assumed that the -- there will be less allocation or there will be different pricing mechanism for that. Certainly, if input gas price increases, market will -- the margin will be under pressure. But you see, because the -- in CGD sector, the prices are mostly based on alternate fuel price. So what -- to the extent that they have margins, they will increase. But if that margin is lower than the input gas, certainly there will be pressure. But that is one part of it. The another part of it is that the CGD sector is a growing sector. So even if there is a little bit pressure on their margins hypothetically, but then they are growing and their business is going to increase. And the size, when increases, that will give another efficiency, in my view, that will compensate that. So that pressure may not be to the extent which is being envisaged if this happens.
Okay. But do you think there will be like a continued support in terms of 100% APM gas allocation for the sector?
Yes, yes. That's the priority sector. It is in a list of priority sector. As on date there is no change.
The next question comes from Avadhoot Sabnis with Incred Capital.
Yes. Sir, firstly, since as you give the status on the 3 fertilizer plants on the East Coast pipeline, could you give the status of the remaining 2 which is Matix and Ramagundam where we're also going to supply energy?
Actually, I shared on the status which were in progress. But if you talk of Ramagundam, Ramagundam commercial production happened in March '21, right? And plant is currently consuming 1.7 MMSCMD of gas. And it is -- plant is of course yet to be stabilized. And full gas offtake is likely to happen sometime in March, April 2022. Because it started, so I did not share. And in the respect of Matix fertilizer, Durgapur supply commenced in other...
I'm sorry. If it is 1.7 right now, on full offtake, how much would it increase to?
2.2. Got it?
Yes. I'm sorry to interrupt. Very sorry.
Yes. Yes, no issues. So gas supply for pre-commissioning -- sorry, I'm sorry, the supply commenced -- I'm talking of now Matix, in August 2021, and currently drawing at full quantity. That is 1.5.
Sir, reason -- this is related to my question was, I said, just to get the background for an overall question, which is that if I look at the gas sales volume, which is 96.56 in the current quarter, it is virtually flat compared to, let's say, what it was 2 years back, December '19 quarter, the last week of third quarter. If I look at your transmission volumes, 114, they compare to 110. And all the additional 4, I would say, can be attributed to the Reliance volumes. Okay. So basically, your own customers broadly have not taken up more at all, okay, in the last 2 years. And what I wanted to ask is, a, if you can give us any color on that; two, especially on the LNG cargo, as you have explained in the past, you all have to go forward scheduling in terms of planning for how much volumes get sold in the end market as per the contracts for you to be able to schedule everything. From that perspective, this volume that you've sold -- or rather let me put it this way, the long-term contract that you have signed was supposed to come through in third quarter, has it been lower than what you thought it would be in March and April? And consequently, you had -- if it was lower than you had more volumes to offer in the spot market comparatively. Would that be a right assessment?
So the [indiscernible] our volumes are flat as compared to the peak, which we had in December '19 and now. We -- yes, to some that -- that's correct. But then we have all the contracts which we had in the past, which we shared, like all the 5 fertilizer plants. And I shared in the opening briefing that these all plants will come in stages. And therefore, the plant will take gas on an average, if we talk of peak, they will -- the increase will be 6 MMSCMD. But if you -- on an average, there will be 3 to 4 MMSCMD of gas, which is going to be increased, and consequently, the transmission will also increase. So this -- in March, April, the -- we expect the marketing volume and transmission volume, both will increase.
No, no. Sorry. Maybe you didn't understand my question. I was asking the other way around. When you're planning in March 2021. Saying, okay, how much sort of LNG will sell in India based on the long-term contracts, okay, you would have factored in some volumes for the fertilizer units from all your long-term customers. Have the actual volumes been lower in third quarter compared to what you had planned initially? And consequently, you had more to offer in the spot market?
See, volumes from suppliers were as expected. There was no shortfall from international suppliers. Okay?
I'm asking from your customers' perspective. Sorry.
From customer perspective...
Let's put it this way. In some of the earlier quarters, okay, one of the -- whenever you had explained, for example, that you have expected a new plant to start off in, let's say, 1 quarter or 2 quarters, okay? And that plant didn't really start. There were some issues and stuff like that. So whatever long-term volumes you had reserved for that particular plant, you are forced to sell in the spot market. Okay. That would happen, right? I mean, effectively, as I say, we plan well in advance, all these things. So according to your earlier plans, has the long-term volumes been lower? And accordingly, we have to sell more in the spot market? Let me be more explicit in terms of what I'm saying. If the volumes have not really moved, and if you're still making higher profits on gas trading, then obviously, margin has gone up, right? And the margin can go up only if, as I said, if more is sold in the spot market at whatever prevailing higher prices. I'm trying to get a logic on that.
Okay. I'll try to explain. If you actually look at the physical numbers, there is an increase, okay? You are delivering inference based on delay in anchor plant coming up. But all along in the past, besides the long-term volume, there have been occasions where we have been sourcing LNG from spot market to meet the spot requirements, okay? Are you with me?
Yes, yes, please. Please go ahead. Sorry.
But unfortunately, because of the spike in prices in the last -- in the previous quarter, we didn't have scope for buying spot volumes, spot cargoes, okay? But the molecules inflow expected under the long-term contract that came in, okay? So it's a matter of how we reappropriate or bifurcate it between long term and the spot.
That's precisely my point, sir. Effectively, I assume your -- let's say, in second quarter argument sake, let's say you were selling 10 cargoes in the Indian market at long term -- to long-term customers and another 10 cargoes to the spot market by procuring spot, okay? Now if your substituting, then obviously, the long term has to go down, right, in terms of somebody who's not taking. That's why you can substitute. Otherwise, how can you substitute?
There is no such case here in this quarter that nobody was willing to take. All we can say is that we didn't have the opportunity to buy cargoes from the spot market.
So would it be right to say there is a substantial, still -- I mean, against the general impression that all -- most of the volumes sold in the Indian market -- or the LNG sold in the Indian market is all linked to oil pricing? At least in this third quarter, there would have been a reasonable amount of volumes sold at spot pricing?
No, come again?
I think the general impression is that whatever LNG volumes you're selling in the Indian market are all sold as oil pricing, basically RasGas pricing. Okay. Would it be right to say that not all...?
Not all substantially.
Yes. Okay. Would that -- has the proportion -- I mean, is there more of spot let's say, in this quarter, more volumes sold at spot in the current quarter relative to history?
No.
Okay. I'm sorry. Can you give us any color at all as to then how effectively margins could have gone up so dramatically quarter-on-quarter?
Because the margin doesn't have to always necessarily go with the increase in volume, isn't it? We sold less volume in the spot market, but at a very high price. The volumes sold in the spot market is less than the preceding quarter, but the realization has been much higher than what it was in the preceding quarter.
Okay. Understood.
Yes. Your question is valid for the same physical, how you're having higher margin. So this is the reasoning I can give.
Okay. So in that sense, you would have -- you realized the same kind of spot pricing in India that you would have realized selling in, let's say, Asian market? Would that be a fair sort of assumption?
No, no, no.
Okay, okay. Now another competing sort of question...
It's very difficult to give that analogy. And it may not be true always. Sometimes, it might be true. Because global market and Indian market need not be and may not [Technical Difficulty].
No, no, what I try to understand, sir, is -- as you rightly said, you said you sold certain spot volumes in the Indian market. When you say spot volumes in the Indian market, it would have to be, what, the benchmark would be the Asian spot price, right? That's what I meant.
Yes, yes, yes.
Sir, that's what I meant. Instead of telling we would have same realization in India as you would get in the Asian market.
By selling the LNG as liquid in the global market, you are saying?
Yes.
Yes, that is possible, but we didn't do that. We brought the volume into the Indian market.
Yes. That's what I'm trying to say, sir. Instead of bringing in Indian market, you should have sold in Asian market at Asian spot, the realization would be the same, right? You have sold in the Indian market also at the Asian spot price?
It depends on when we undertake this -- see, in the international market, we have to decide the sale much in advance. But in Indian market, it is just 1 week before also we can sell it. That's a difference. To sell a cargo in January, we would have decided by the month of November, okay? But to sell our volume in Indian spot market, we can decide even during January. That's the difference I'm trying to tell.
Okay. Understood, sir. Understood. Sorry, last very sort of completely bookkeeping question. What was the interest capitalized in the third quarter -- or in the first 9 months, let's say?
Interest capitalized?
We'll give you off-line. This is only data, we'll have to take it out.
The next question comes from S. Ramesh with Nirmal Bang.
So just to go back to the discussion on LNG margins. Can you give us a sense of any inventory gains or mark-to-market gains you would have booked in this quarter given that the spot prices have gone up so much?
There is no inventory gain in this quarter.
No, what we're trying to get at is if you're saying you're going to shift cargo from the international market and you're going to sell it to domestic market, if you're using that, the domestic purchasing part is going to be possibly not more sensitive. Is there a risk that your realizations will come down and the margins will come down? That's why I'm trying to arrive at.
Can you come back one second, please?
No, see, if you look at your margins, there's been a sharp increase in the unit margins for your gas marketing business. So if you're saying that you're going to bring additional cargo from the international market to the Indian market. On an equivalent basis, will you be able to -- or the same margins in the Indian market?
No, no. If we are required to bring in from international market to meet further demand, there cannot be same margin because that's the market.
What is the long-term sustainable, say, margin per unit turn? Because the percentage margin doesn't make sense. So in terms of unit margin, what is a more sustainable margin one can assume with the large marketing business?
So just -- yes. Yes. Let me try to give an answer, okay? In trading, I mean, it will be very difficult to assign or fix or percentage of steady margin, okay? Because of the commodity in -- sorry, the volatility in commodity prices, which all we have witnessed, okay? The only thing which we can say favorably is that 90% of our volume have been tied up under a long-term contract through a price formula, and so is the case in the upstream side also. So to that extent, the revenue is likely to be stable because both the sides are insulated from market volatility. But the balance, 10%, might decide the swing depending upon the market conditions.
Yes, that is helpful. And the second part, when you mentioned that you will get the benefit of HBJ and the JHBDPL pipeline for your Greece gas volumes in the Urja Ganga pipeline, what happens when the unified tariff is introduced? How would that change the -- that transient margins? Can you take it on a blended basis once, say, JHBDPL is in full operation?
Okay. First, I have made that statement that when these 4 fertilizer plant comes fully on stream, weighted average revenue tariff realization will increase. And obviously, for the current tariff mechanism, which is costing tariff or pipeline to pipeline tariff for end consumer, and these 4 plants being existed on JHBDPL Phase II, the tariff will increase. Coming back to your question, what will happen when unified tariff comes?, In the current form, even though that unified tariff has not yet been implemented, there are a lot of issues with that. Even if it comes in current form, debt regulation shows revenue neutrality. It means whatever tariff -- otherwise, I am eligible, pipeline to pipeline, will be available even in the regulation, which is notified. That is revenue-regeneration concept. So my revenue are going to increase when these 4 plants come fully honestly.
So that means we can expect your return on capital employed on the pipeline business to go up. So is that a fair assumption?
So for these pipelines, because some or more pipelines we are laying, if you include those, we may not increase to that extent. But for this pipeline, certainly going to go up.
Okay. That's useful. And then one final thought. There is statement there importance of matter the Note 53 about INR 524 crores -- is there any liability that is likely in future which we have a write-off? Or does it mean actually?
Yes. Let me take a couple of minutes to explain to you. We have a company of our own, 100% subsidiary. That is GGY in United States. We have -- that company has taken a loan of $17 million, and we have provided corporate guarantee. Now in terms of IndAS, if you provide corporate guarantee, you need to account for expected credit loss. And add on this, there is no trigger that we need to provide that. We have taken the opinion from the Institute of Charted Accountants that also suggests the same. So what we said in our last 2 accounts, that we'll examine it in next quarter whether we need to provide any provision or some provision. Though there is no trigger. That company is saying is long. They are being paid regularly. There is no -- nothing which says we should provide. But anyway, IndAS and the guidance does not suggest that you can keep a futuristic if something may happen. So north INR 524 crores, maybe based on some opinion, comes to we may need to provide. But there is no trigger and no actual loss.
Okay. Sir, one last question. The Konkan LNG in the consolidated numbers, is the margin from that accounted in the gas marketing segment? Where is it accounted in the segment earnings, revenue and EBITDA -- EBIT?
Just hold on. Gas Marketing segment.
The next question comes from Sujit Lodha with Birla Sun Life Insurance.
My basic question would be, of the 97 MMSCMD which is reported in the trading business, can you give us the breakup of domestic and long-term LNG and spot?
Sure. Just hold for a while. Up to Q3 -- yes. Domestic gas if we talk -- let me say the other way around. The total 97, we have our RLNG spot is around 45%, okay? And then we have overseas sales around $10 million, 55%. And rest is domestic.
Okay. So almost 42% is domestic?
Yes.
And of this 45% and 10%, 55%, how much would be spot and how much will be long term?
So we actually almost sell 10% on a broader basis in the spot market.
10% of 97.
No, no, no. RLNG because APM gas is not for -- domestic gas are not on the spot.
No, no, no, I'm just asking 10% number is...
5% to 6%, 7% of total.
So 6, 7 MMSCMD would be spot?
5. Less than 5.
Less than 5.
Less than 5. Sir, my second question would be regarding the trading margins. While obviously it is a very dynamic in nature the pricing, et cetera. But whatever contracts we do, we have a fair bit idea for another 3 months because they have to be contracted at least 3 months in advance of your overseas cargoes. Sir, so your -- what is your take on the gas trading margins? Are they expected to remain in this trajectory for next quarter as well? Or do you expect any major swings from there? I'm just asking the guidance. I'm not asking a number. I mean, what could the direction...
I'm also giving an answer. Who can project the spot -- LNG spot price? So currently, the LNG spot price -- at that level, the numbers can be at that level. But globally, we can't predict what will happen to LNG price.
Sir, no, but your overseas contract at least would be a couple of months in advance, right?
Yes, yes.
So we -- in sitting in Feb, we would have an idea of how it's going to be in -- what it had been in Jan and how is it going to be in March, April? That's a bit of idea is there, right? So are they expected to be stable at the 3Q levels? Or what is the guidance there? I mean, will there be a major...
It's really very good, and we will not be able to say that we'll be able to maintain Q3 or we will be better the Q3. It will be around a little less than Q3.
Okay. But in and around that 5%, 10% plus/minus.
I cannot say 5%, 10%. But yes, we'll not be better or relatively challenged to meet that even.
Right, right, right. Sir, my last question would be on transmission. I'm sorry if I missed that number. What is the current transmission volumes?
100 -- current means in last quarter, you were asking?
No, no, last...
9 months.
No, no. Now you say, for example, exit rate of third quarter or if the Jan number, if that could be possible for you to give?
Yes, yes. So on -- in Q3, it was 114, yes? And the current exit rate is lesser than that, it is 100 -- 105, 106. And the primary reason is that a few of the fertilizer plants are under shut down for a period of 15, 20 days, which has reduced our volume by 6 to 7 MMSCMD or maybe a little bit more. So if you removed those volumes, so it is currently around 105 , 106.
And when they come out of shutdowns, we are still operating at MMSCMD?
112.
Okay. So it is lower than the third quarter number?
Yes.
Okay. And these shutdowns are expected to be on until what time once again?
Around 15 of February.
20th of February.
20th of February. I have been corrected. 20th of February.
[Operator Instructions] The next question comes from [ Gokul ], an individual investor.
Sir, could you give an update on the InvIT proposal that was sent to the Ministry? Is there some movement regarding any going forward listing them?
So InvIT proposal is still under deliberation. As you know that 2 of the pipelines have been identified for InvIT. That is DUPL and DBPL, Dabhol Bangalore and Dahej Uran Dabhol Panvel pipeline. So we have appointed a transaction adviser to identify what's going to be the best mode of financing for us. So based on our analysis, we found that -- because we are almost a debt-free company. So we -- that is, we are able to source it at around 5%, 5.5%. And that is a better source for us in financing. And other modes are costlier as compared to this. And then we also carried out a study through transaction adviser which suggests that another mode word can be the debt securitization model for -- instead of the InvIT, we can also go for that securitization model. So that is almost or a little costlier than the current rate of borrowing. So we are still -- we have examined. We are still under deliberations that -- what is the more actually we should go. So we are discussing, and nothing concrete has yet been finalized.
The next question comes from Sabri Hazarika with Emkay Global.
Sir, I have just one question. So currently, if I were to breakup long-term LNG volumes and longer-term LNG volumes, how would the mix be out of, say, 40, you said that around 55 is your LNG volume of which around 5 MMSCMD is spot. So in this 50 MMSCMD how the breakup would look like, Qatar versus Gorgon versus Gazprom versus U.S.?
Yes, yes. So we have around 4.8 MMTPA of long-term contract with Qatar, 4.5 plus 0.3. Okay?
Okay.
So then we have 5.8 MMTPA from United States. And currently, we are having 2.5 from Gazprom and a very minimal volume of 0.4 from Gorgon. So this is how I have told in terms of MMTPA. But you can just multiply by 3.6, so you will reach to MMSCMD. So -- go ahead.
Yes. These are all operating at 100%, right?
I have told you 100% only because, otherwise, we have a ramp-up in Gorgon, the final ramp-up is pending. So currently, we -- this is what we are actually getting.
2.5 MMTPA is the current volume. And ramp-up would be to how much?
2.85 is the maximum.
The next question comes from Kirtan Mehta with BOB Caps (sic) [ BOB Capital ].
Just one question to understand on the utilization. You said that the pipelines are...[Technical Difficulty]
Your voice is not clear. Your voice is not clear.
Can you hear me now?
Yes. A bit better.
Yes. I was asking, I wanted to understand about the utilization, how it would develop over the next 2 to 3 years. What I understand is currently, pipeline is sort of operating at 55% utilization, and there would be 5% to 6% sort of natural gas transmission volume increase per annum over next 2, 3 years. At this in point of time, I think we will have Urja Ganga plus sort of the Mangalore Kochi pipeline capacity ramping up as well. So there would be capacity development as well. So how do we see the average utilization improving over next 3 to 5 years?
Okay. So currently, the utilization is 50% to 55%, and the Phase 2 of the Urja Ganga is going to get commissioned, okay? And all other -- when we are saying 55% -- we are saying 55%, considering their nominal capacities. Okay? The backdrop of 26 -- 206 is considering their nominal capacities. When I'm talking normal capacities, like in case of HBJ, it is 107; in case of Dabhol, Bangalore, 16%; DUPL, 16%. So considering their nominal capacities. Only in case of Urja Ganga, the tariff has worked down considering the 7.44 MMSCMD, but the capacity is 60%. Now only tariff has been determined considering the Phase 1 only. So while the volume increases, like 4 fertilizer plant comes, the volume -- total volume will increase, and consequently, the utilization percentage will increase. Okay?
The next question comes from [ Amit Sanghvi ], an individual investor.
Yes, congratulations for this best ever achievement for this Q3 in turnover, PBT and PAT. Sir, my question is already answered in the previous discussion, but I have one more request for you, sir. If you can provide some sort of presentation before this earning call starts, it would be better to understand the actual thing. So it is my request, sir. Okay?
So what kind of presentation you expect because the financial results are already available in public domain.
Sir, what is available in public domain is a quarterly result. What I would say that we have discussion over some quantitative details, which is not a part of this public domain information. Sir, I just request that if you can provide some sort of presentations for the particular quarterly production and financials, it would be greater.
We will consider doing that.
The next question comes from Pinakin with JPMorgan.
Sir, just going to go back to the trading business. Very early in the call, the management specified that roughly 15 cargoes have been sold forward until March '23 overseas. Now just trying to understand that on those 15 cargoes, has the price already been fixed on a basis? Or is it linked to some kind of spot index or crude prices? So what we're trying to understand -- what I'm trying to understand is that on those 15 cargoes, depending on how crude and LNG prices move, will there be a change in profit and profitability?
Just to correct, it is not exactly 15. It should be around 15 to 20, I mean, we can say around 20 numbers, okay? These were sold maybe 4 or 5 years before was indexed through HH. And some of the -- I mean, all the volumes are indexed to HH only.
So to that extent, sir, if spot LNG prices were to go to Asian spot, JKM index or to go to $15 or $10, there would not be any profit flow-through on those cargoes?
I don't think one would sell volume like this.
Understood. And sir, the cargoes that are brought to India from the U.S., when you sell them to India, are they on a spot mechanism linked to JKM? Or are they crude contract linked? So what I'm trying to understand is depending on how spot JKM moves, will those U.S. cargoes that are being sold to India see a change in the profit?
I don't think industry operates that way.
Okay. So to that extent, sir, then the December quarter profit were essentially some spot cargoes which were sold at very high prices, right? It is not something which can repeat itself.
Sorry, can you repeat because...
So 18 -- so December quarter marketing EBITDA, gas trading EBITDA was roughly INR 1,800 crores. Now effectively, if most of the U.S. cargoes either being sold in India or sold overseas are linked to some kind of indexes, then it means that the December quarter surge in trading EBITDA was essentially because of a few floating cargoes, which would have been sold at very high spot prices, right?
Yes. One of the reasons for that.
So that profit should not be repeated again? Or do you see that if spot LNG prices remain high, then there are enough floating cargoes for GAIL to benefit from them in the March quarter as well?
Floating cargo means? Can you define?
So floating cargoes essentially, sir, where you have not linked -- where you have not forward sold to any Henry Hub-linked index or to a Brent-linked index? And the realization would be JKM, JKM spot cargo -- spot index.
Just to clarify, we don't have any floating cargoes for this quarter, current quarter.
The last question comes from the line of Mayank Maheshwari with Morgan Stanley.
Just a question in terms of the medium-term outlook, I suppose, that I'm kind of looking for is, as you said, I think a lot of your cargoes are kind of getting tied up in the domestic market beyond 2023. So are you kind of now thinking to kind of start looking around eventually for more volumes considering how good gas demand has been in the country? Is that something that the Board is thinking about over more long-term solutions to source gas? Obviously, markets are higher...
Sir, that has already been answered. I will already repeat it, that because, we, being a gas company continuously look for the sourcing if there is a demand in our country. And we are able to meet that. So regularly, we assess the demand and supply situation. And if such situation arises, certainly, we'll look for that. And the deliberations we have started and we are looking for those opportunities. And I also said that we were -- until the -- our volume risk was mitigated, we are also marketing the LNG in international market. Once we start bringing those cargoes to domestic market, that space is also available for us. That means we can source and market in the international market, and based on the demand, bring to India for domestic market. So that's the continuous process. Being a marketing company, we continue to assess that demand and supply situation in order to meet the demand.
Thank you. In the interest of time, that was the last question. I now hand the conference over to Mr. Harshavardhan Dole for closing comments. Please go ahead, sir.
Thank you. On behalf of IIFL Securities, I sincerely like to thank GAIL management for giving us an opportunity to host the call. I also thank all the participants for joining in. In case there are any questions which are unanswered, you can drop a line to me or reach out to the GAIL IR directly. I'd like to request management to make any final remarks, if at all.
No. Thank you, Harsha. You -- now we have tried to answer most of the questions, but 1 or 2 questions, we could not answer to our participants. Those can be referred back to us specifically. And in general, if somebody has got any query, we can certainly address our IR team, and we will be responding. Thank you so much.
Thank you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.