Petronet LNG Ltd

NSE:PETRONET

Earnings Call Analysis

Petronet LNG Reports Growth and Diversification

Petronet LNG Limited experienced a slight decline in total throughput from 230 TBTU to 223 TBTU compared to the previous quarter, while year-over-year growth was strong at 16%. The company reported robust financials with the highest ever H1 profit before tax (PBT) in its history, and a profit after tax (PAT) increase by 12% compared to the previous half. An interim dividend of INR 7 per share was declared. Petronet is also diversifying into petrochemicals with a notable INR 20,685 crore PDH, PP project at Dahej and an expectation of healthy project and equity IRRs of around 20% and 30%, respectively. The project already secured a customer for 250 KTPA, alongside a lucrative deal for 11 KTPA hydrogen sale, and is finalizing agreements for 500 KTPA ethane handling, pointing to a solid growth and risk mitigation strategy.

Robust Finances and New Development Initiatives

Embarking on strategic infrastructural developments, the company has confirmed that it will erect another jetty. This addition has already received Board approval, negating concerns that it is a new project-induced expense. Additionally, the company plans to enhance its cold energy utilization, which dovetails into their energy-saving agenda - with a projected cut in power costs by INR 120-130 crore annually. Maintaining its strength in power efficiency is a hallmark of the company's operations, and this move reiterates its commitment to cost-effectiveness.

Significant Investment in an Ethane Handling Facility

There's significant investment underway, including the setup of an ethane handling facility, which had earlier not been contemplated, leading to budget revisions. The facility, along with the propane tank, will cost around INR 2,500 crore, bringing the hard cost of the plant to INR 16,069 crore. With provisions for currency depreciation, contingencies, and other soft costs, the total escalates to INR 20,685 crore. Payment discussions are still ongoing for the new facilities, with hopes to see resolutions in the coming quarter.

Projected Profitability and EBITDA Estimates

Once the new projects reach full capacity, profitability is expected to surge to approximately INR 2,000 crore, with an anticipated EBITDA of around INR 4,000 crore, at the end of the fiscal year. The commissioning of these projects is slated for a 4-year timeline, aiming for completion around 2027 to the start of 2028.

Commitment to Shareholder Returns

Shareholders can rest assured, as dividend policies have been upheld with the company distributing an interim dividend of INR 7 per share. Even amidst significant project expansion, the company's robust cash flow situation is strong enough to support this shareholder-friendly approach. They are looking to finance the new developments through debt, with equity deployment being kept at a minimum of 30%, and with the execution of these mega projects phased over 4 years, assuring the dividend's reliability going forward.

Competitive Advantages and Market Strategy

The company enjoys a competitive edge with its in-house jetty, which obviates the need for lengthy propane transportation, unlike its competitors. They also benefit from their adjacency to a re-gasification, LNG re-gasification plant, which provides an annual power cost saving of over INR 120 crores. Such operational efficiencies, coupled with comprehensive customer tie-ups, ensure that nearly 50% of the company's profitability from the project is secured and risk-mitigated, giving it an upper hand in the market.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Petronet LNG Limited Q2 FY '24 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. S. Ramesh from Nirmal Bang Equities. Thank you, and over to you, sir.

[S. Ramesh, analyst]

Good evening, and welcome to all of you on behalf of Nirmal Bang Institution Equities. It's been my pleasure to invite you to the 2Q FY '24 earnings call hosted by the management of Petronet LNG Limited.Representing the company, we have Mr. Vinod Kumar Mishra, Director Finance; Rakesh Chawla, Group General Manager and President, Finance and Accounts; Gyanendra Kumar Sharma, Group General Manager and President Marketing; Mr. Vivek Mittal, Chief General Manager and Vice President Marketing; and Debabrata Satpathy, General Manager, Finance and Accounts.So without much ado, let me invite the management to give their opening remarks. Over to you, sir.

[Vinod Mishra, executive]

Thank you. [Technical Difficulty] if you see the throughput in Dahej it has been 210 TBTU as against 217 TBTU in the previous quarters, and 182 TBTU in the corresponding quarter. Total throughput in Dahej -- total throughput Dahej and Kochi has been, as I said, 223 TBTU in the current quarter as compared to 230 TBTU in the previous quarter, and 192 TBTU in the corresponding quarter.So, throughput has been good, not so good, but revenues are fine, and we have done a good job this time also, and if you see the throughput in first half of this year as compared to first half of the last year, Dahej has performed 427 TBTU as against 378 TBTU in the previous year as well. So, there has been a growth of around 13%, and if you see the quarterly results, there has been 16% growth in throughput of this quarter as compared to corresponding quarters, and the total throughput has been 453 TBTU in H1 of the previous year as compared to 400 TBTU in the corresponding H1 of the previous year.And the profitability, if you see the profitability has been around INR 2 crores in this quarter as compared to INR 1,062 crores in the previous quarter, and INR 994 crores in the corresponding quarter, and PAT has been INR 818 crores in this quarter as compared to INR 790 crores in the previous quarter, and INR 744 crores in the corresponding quarter.And if you see the half yearly results, the H1 PBT has been INR 2,164 crores as compared to INR 1,931 crores in the first half of last year, and PAT has been INR 1,608 crores in this first half as compared to first half of last year of INR 1,445 crores.So, this has been the result, and if you see the growth, this is the highest ever PBT in H1 of any year to part of the history of Petronet LNG, and the growth of PBT and PAT in the current half has been 12%, 11% as compared to the corresponding half of the previous year. And similarly the PBT and PAT has grown by 11%, 12% as compared to corresponding quarter of the previous year, and PBT and PAT has grown by 4% in this quarter as compared to previous quarter.So, this has been the result, and further the Board of Directors has approved a dividend of interim dividend of rupees INR 7 per share, and you know that the consistently company has been paying dividends of this 70% on the basis of capital since many years. So I think the result is good. And apart from that, if you see one more development has been there in this Board Meeting.Before that, I would just like to tell you that our utilization has been 93% of the H1, as compared to 96% in the previous quarter, and it was only 80% you see in the corresponding quarter in the last year. So, this is good news, and perhaps this has been possible due to better utilization of our Dahej Terminal, and also the efficiency in operations, all because of that we have been able to perform better in this quarter.One more development which I just want to convey that our Board has approved a petrochemical PDH, PP project of INR 20,685 crores, and this will be built in the Dahej Terminal, and if you see the profitability from this project, the IRR has been very nice, and if you see around 20% is the project IRR, and around 30% is equity IRR.So, overall project is good, and company is going to grow in a big way, and this is a diversification which has been done, and most important thing is that we will continue to pay dividends of 100%, even for this period of project, because our generation will continue to be of that range, and project will be in that equity financing mode of 70-30.So, that will continue, and major highlight has been that we have got a customer who will buy 250 KTPA. We have a PDH, PP grant of 750 KTPA, out of which 250 KTPA has already been tied up with a customer, and we have Dahej for a period of 15-years, extendable to another 5-years, 20-years. So, 250 KTPAs will be sold to a customer, designated customer, and balance 500 KTPAs propane will be converted to PP.Apart from that, we have also tied up with the customer for sale of 11 KTPA of hydrogen at a very lucrative price, and perhaps this will reinforce our risk, and perhaps this will mitigate the risk which we can say we have, and you see another icing on the cake has been the ethane handling system which we are going to develop along with this PDH, PP plant. Hereby, we have approved our customers, and 2 of the customers are almost on the verge of tying up with us for 500 KTPA ethane handling. So, this will be purely a tolling model which will be good for the company, and there will not be any other risk in this kind of business.So these 2 businesses, if you see, will mitigate the risk to a great extent. And otherwise, also the plant between propane and propylene and -- propane and polypropylene is very nice and perhaps this will take company to a different level in the future. Thank you very much.Now, I hope you got the question. Please ask your question.

[Operator]

[Operator Instructions] The first question is from the line of Puneet Gulati from HSBC.

[Puneet Gulati, analyst]

Congrats on good numbers. My first question is PDH, PP plant, can you please run down your assumptions on what kind of margins, operating costs, are you assuming when you indicate the 20% project IRR and 30% equity IRR?

[Vinod Mishra, executive]

You want me to run the margins, which has been there? See, what has happened actually, we have taken an average of last 7-years propane and propylene prices, which are basically, if you see, the pricing is done in India based on Southeast Asia price of this propane, and we are taking those prices. So, 7-year period, what we have calculated, we have removed the unusual year, 2021, and otherwise this is all fine.And this has, in fact, given us a more robust number because prices have been, have eliminated any kind of deficiency which may have. So, what we have done, we have taken average of last 7-years, and if you want to know exact number, although it is appropriate or not, but I need to see whether we can give that, but I would like to mention that it has been done by external agency, and this exercise is carried out by SBICAPS, and they have taken the number based on the obvious size of propylene, propane, and polypropylene.So, if you exactly want to know the numbers, I will have to sit with you, but I can tell you that these numbers are available in the public domain, and almost there is a crack of almost, I can tell you $400, if you see 7-year average for propane versus propylene, and around $600 for polypropylene, if you compare propane versus polypropylene. So, this is how I can explain that this is there, and IPR is calculated by SBICAPS after taking into account the current scenario in the market.

[Puneet Gulati, analyst]

And more importantly, the OpEx, would there be any OpEx advantages that you had versus the normalized number, if you can give some comment there?

[Debabrata Satpathy, executive]

Yes. This is Debabrata. Actually, today the Board has approved this project, and this is a message to all the analysts and investors that we will very shortly do another call with few more details what you are asking about the CapEx, OpEx, and the returns, et cetera. We would like to touch upon this project information today on a high-level basis, and go into deeper with the Q2 results. So, but then we will come up with another call very shortly with all the details of the project.

[Vinod Mishra, executive]

In the meantime, the high-level position, which we can just with the higher-level assumption, which you can just say, which are available with us, these are that there will be common jetty for this project. We are going to build another jetty , which is in any way was approved by Board. So, this is not something which is coming in the project.Secondly, many facilities like utilities, they have comma, and one important thing has been in terms of cold energy, which we are going to utilize in the plant. So, this is saving almost INR 120 crore, INR 130 crore in terms of power cost, because otherwise we need some cold energy to pull down that particular cost, where we are storing these materials propylene.So, that way we are saving in terms of energy cost in a big way, but details we will work it out in a big manner, and then we will come back to you. But I can say because of synergy with Regency Vacation Terminal, major OpEx has been very less as compared to any Greenfield project, where we have CapEx -- OpEx as compared to our project.

[Puneet Gulati, analyst]

And we will look forward to the detailed call, but just for the sake of it, initially the plan was INR 14,000 crores. Why has the cost gone up to INR 20,000 crores?

[Debabrata Satpathy, executive]

Actually, I would just like to mention that it was, and it says INR 14,000 crore, but later on we have also developed one ethane handling facility, which was, in fact, was not initiated earlier. So, around INR 2,500 crores is that ethane handling system, whereby we will be building one tank, ethane tank, and propane tank is already coming along with the PDH, PP plant. So, because of that, and moreover, if you see other costs, there is a soft cost also.If you like to see total hard cost is INR 16,069 crore only. But there is a provision for increase in rupee depreciation of INR 1,900 crores. Some contingencies have been provided by INR 541 crores, IDC INR 1,600 crores. Margin money is INR 400 crores. So, INR 4,600 crores is the soft cost over and out of the hard cost of the plant. So, that has also been built in, in this budget cost, and that is why it has come to INR 20,685 crores.

[Puneet Gulati, analyst]

Understood. That's very helpful. And lastly, any update from the customers on payment of user pay for the previous year?

[Debabrata Satpathy, executive]

We are still in talks with customers, and shortly we will be coming back with a solution. And payment is still awaited, no doubt. But since we are already talking to them, and we are hoping that solution will come out, maybe in the next quarter, you will find that we are able to work it out.

[Puneet Gulati, analyst]

Understood. That's very helpful.

[Operator]

The next question is from Amit Rustagi from UBS Capital -- UBS.

[Amit Rustagi, analyst]

Sir, just wanted to understand that you will be doing another call to explain us, but I wanted to understand what is the op-ed, what is the EBITDA, and post-completion of the project. And if you can give it separately by like, what will be the EBITDA on IPC and utility, on propane to propylene, and PDH, PP? And finally, if you are doing something on the propane handling as well, so what are the different numbers? So, that we know how much EBITDA is at least subject to the commodity volatility, and how much is the EBITDA which can remain consistent?

[Vinod Mishra, executive]

I will just mention you are asking, so I will give you the numbers slightly. But here you are asking breakup of propane handling and ethane handling. As such, these have not been built in the DFR. But we will work out, you can say that calculated number, but we will tell you later because that breakup is not readily available. But one thing I can tell you that profitability, you are asking EBITDA and profit. So, we have estimated that from the year it will start operating at 100% capacity, the generation of profit will be to the range of INR 2,000 crores. So, it is likely that this will go and it will go up to the project level INR 7,000 crores back in the end of this year.So, initially we can say that 2,000 crores will start when it is operating at 100% capacity. And EBITDA you are asking is around INR 4,000 crores. And what else you were asking?

[Amit Rustagi, analyst]

Sir, just the timeline like when you will start commissioning this project -- when you start the project when is the date and what will be the commissioning timelines?

[Vinod Mishra, executive]

Commissioning will be almost you can say 4-years from now, you can say. '27 and maybe beginning of '28.

[Amit Rustagi, analyst]

Okay. And sir in the same breathe do you have an update on Gopalpur projects and other projects which we are doing now? When are we going to see 5 million tonne capacity expansion at the Dahej? And when are you going to make a decision on Gopalpur as well?

[Vinod Mishra, executive]

Yes, Gopalpur actually we have already finalized the document and the transaction document are to be approved by Board now again. And after that, we will start on the project, because before finalizing the document and signing the lease agreement with Gopalpur Port Limited, we cannot go ahead. So, these documents have been now finalized by our committee. It will go to the Board for approval. And thereafter, we shall start the -- awarding the jobs for construction of various jetty and other facilities of the project.And from the Board here, I'm assuming is that FSRU, which we require for this project, because we have an interest in FSRU energy tender. Before that, we are going for consulting short-listing so that we can work out whether there is a suitable FSRU available or not, and at the right price or not. That exercise is now being undertaken. And soon we will come to know if there is any FSRU available or not at a reasonable price. If it is not, then perhaps we will go for land-based terminal in later period of the project.Otherwise, also we thought it will go for land-based terminal after 4, 5, 6 years. But in case availability is poor because of deployment of so many FSRUs in European region because of import by Europe of LNG. So, I think that has to be undertaken and we'll come back to you with the information.

[Amit Rustagi, analyst]

Okay. So, just one observation from the stock price reaction today. So, you have seen that investors and markets have not liked this idea of increasing CapEx to around INR 21,000 crores. But broadly, you can give them more confidence by maybe slightly increasing the dividend rather than just staying at the similar level of dividend. Because like you mentioned, you are reporting highest ever profit in the first half of this year. And we hope that in the second half of the year, performance remains strong. And with already INR 7,000 crores of cash in hands, that is issue getting resolved. I think there should be more reward for the shareholders over next 4 years. I think that only can give them confidence that you are confident about the project. If we start to reduce the dividend, keep it to maybe INR 10 rupees a share that will not give a right signal to the shareholders.

[Vinod Mishra, executive]

Right now, dividend we have maintained and this is an interim dividend of INR 7 rupees per share. But of course, your suggestion is well taken. And we will take care, we will convey this to our management that we have to maintain the sentiment of the shareholders and keep the dividend high. But at least, I can say that whatever we are paying, we will continue to pay, but we will strive for the higher dividend. And perhaps, let us hope that we will pay.One thing I can say that even after this project, the cash flow is such robust that it will not impact the dividend payment to the shareholders. So, this will continue even this period of construction. As you know, we are going for raising the debt from the financial institution of banks. So, equity will not be to that extent, only 30% equity will deploy. And it is not an expenditure which will be done in a single financial year. It will be over a period of almost 4 years. So, in a phase manner this will be done and accordingly loan will be raised. And I think there should not be an issue as far as the dividend is concerned in the future. And we will try to further increase it as far as possible.

[Operator]

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

[Amit Murarka, analyst]

Just on the stake or pay arrangement, could you help understand like is it on a cost-plus basis or how is the arrangement?

[Vinod Mishra, executive]

Regarding?

[Amit Murarka, analyst]

The arrangement with Deepak Phenolics for the 15-year arrangement, is it on cost-plus basis, stake or pay basis? What are the like tie-ups over there?

[Vinod Mishra, executive]

Yes, I will tell you. Because this is not cost-plus basis, basically, your IPP price plus handling charges plus whatever insurance and GST and other cost. So, it is import parity price which we are going to ask from that. So, import parity price of propylene will be charged from there. Apart from that, we are also charging $41 as or maybe whatever number I will let you know later, but handling charges is there. So, not only IPP price, but handling charges plus GST and insurance cost all will be charged. So, if you see the crack between propane and propylene, it is handsome as of now, almost $400 per tonne. So, it will fetch a good price. It will not be a loss to team.

[Amit Murarka, analyst]

Is there any advance to fund the CapEx that is average given that they are kind of off-takers of the CapEx?

[Vinod Mishra, executive]

Advance as such is not there. We will be, it is only take-or-pay business contract is there with them. If they are not able to take at least 90% of the quantity, then take-or-pay charges will be levied on them. So, it is a kind of like energy contract.

[Amit Murarka, analyst]

But, sir, even for the take-or-pay arrangement, there is no advance that you will take from them? Because we have seen like take-or-pay arrangements getting around and it will --?

[Vinod Mishra, executive]

We are taking, this LC will be there and that will cover take-or-pay also. 45 days LC will be there almost.

[Amit Murarka, analyst]

Okay, sure.

[Vinod Mishra, executive]

It is 45 days LC will be there. That will cover this use of take-or-pay also.

[Amit Murarka, analyst]

Sure, sure. And any specific reason to take a 7-year average? Because like we have seen like off-late, generally the crack spreads on Petchem have been quite weak. And most of the players are struggling to make any decent IRRs on their investment?

[Vinod Mishra, executive]

It is a cyclical industry and if you see the other industries, normally average is taken because it eliminates all uncertainties of any period. So, that is why we have taken 7-year period. If you take only this year size, maybe this may be low. But this will not reflect that true picture over a period of time. So, 7-year period in fact eliminates any kind of abnormalities which may have occurred in this period. So, that is why we have taken this. It is taking care of any kind of uncertainties in any period or some cyclic movements. So, all those things are eliminated when you take an average of 7-year to 6-year.

[Operator]

The next question is from Mayank Maheshwari from Morgan Stanley.

[Mayank Maheshwari, analyst]

Two questions from my side. First on the project itself on petrochemicals. Have you kind of done something around the experience of the PDH's in China and where does Petronet actually kind of stack up better or any competitive advantage that you have versus India? Yes, anything that you have done in terms of study related to China?

[Vinod Mishra, executive]

We have not done any comparison with China right now. But in fact, we understand what is happening in China. And in fact, they are running their plant very well. And I do not think that we have done any comparison with the plant in China. But in India, we have done all kind of studies in this background with PDH, PP. And Indian demand supply scenario is fine. We have got study conducted. There is huge demand in future. And in case we are not going to manufacture, it will be imported into India from somewhere. What we thought that it is the right time that we should enter the business. And the demand in India is going to increase in the future.And further, we have already done some kind of assured contracts with the DPL and they have also sourced some hydrogen. So, what we are doing in fact, to great extent, we have mitigated our project risk. So, almost you can say 50% of profitability is assured business in our total project. What I have told you, almost 50% of that will be through assured business with DPL, ethane handling facilities and propane handling facilities cost.So, that is assuring us. And balance 1,000 is there, but that will not be available to us. Still, we will be assuring also that at least we are assured that 50% of the profitability in the company is on the asset.

[Mayank Maheshwari, analyst]

And sir, the second question is more related to the competitiveness of your project versus let us say DPCL is starting up around a similar time and some of the others are actually starting up in around 1 or 2 years here and there. So, what is the competitiveness of this project that you are trying to highlight to us versus all the others that are coming up in the country?

[Vinod Mishra, executive]

Yes, yes. One thing is that we have jetty there and it is a great case. It is located in nearby. It is 40%-50% from jetty. They will have to use a pipeline to bring it to their plant. So, it is a laboratory-type facility. So, it is jetty there and the market is not very good.

[Mayank Maheshwari, analyst]

Sir, sorry to interrupt you, but could you speak a little closely from the mic because your voice is sounding at a distance.

[Vinod Mishra, executive]

Yes, just a minute. I just wanted to tell you that we have competitive advantage in terms of 2 things. One is very obvious that we have our jetty, which is located nearby and in other cases it is not the case. They will have to lay a pipeline to bring propane from jetty. Like in case of Yale, which has a solid plant, they have to bring propane from JNPT, which is almost 50 kilometers away. So, that is an advantage.Secondly, this is located at a place which is adjacent to our re-gasification, LNG re-gasification plant. So, we can save in terms of power cost, which is around INR 120 cores, INR130 crores, because cold energy, which is being wasted so far because there is no usage in LNG plant, we can utilize it for cooling purposes in PDH plant. So, that is saving power cost to a great extent, almost more than INR 120 crores. So, second reason is this one.Thirdly, that many utilities are there, which are common. So, common utility means there is no additional cost incurred for this PDH, PP plant. So, all this has in fact contributed to give a competitive edge over others. And moreover, as I said, that we have attained tie-up with customers, which otherwise is not there with other producers. So, that is an advantage. So, 3, 4 advantages I have told you.

[Operator]

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

[Maulik Patel, analyst]

Sir, anything related to this Qatar contract extension, I think earlier you mentioned that at the end of this calendar year, there will be an update on the same.

[Vinod Mishra, executive]

Yes, we are still going ahead and target is that only December 2023. So, we hope that this will be concluded before that. And discussions are going on continuously.

[Maulik Patel, analyst]

Just to get an idea, will it be on the same volume or the higher volume? Or will it be more attractive than the current price that we are paying to the Qatar?

[Vinod Mishra, executive]

We are going for renewal of the contract. Renewal means it is of the same quantity, of the same thing. Okay, right. Parts will be negotiated, but otherwise quantity will remain the same.

[Maulik Patel, analyst]

Okay. And will it be more attractive than what it is currently, what we, the Qatar is charging us?

[Vinod Mishra, executive]

Malik, attractiveness is a very relative word.

[Maulik Patel, analyst]

Is it cheaper than what we are paying today?

[Vinod Mishra, executive]

That's what I am telling. Although we cannot disclose that part, whether it will be cheaper or the other, but whatever we have seen in the past, the havoc of the spot prices, I think it is also a right time to reward the long-term contracts as well. So, probably that will do a lot of good to the industry in the future. But at the same time, the negotiation is going on to get the best deal for the country.

[Operator]

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

[Kirtan Mehta, analyst]

One more question on the PDH, PP project. Would you be able to share the sensitivity of the IRR to the margin assumption? If the margin assumptions are, say, 20% lower than your base case assumption of $200 on propylene, 2-propane versus propylene, 600 on PP versus propane, how would the IRR change?

[Vinod Mishra, executive]

Sensitivity, actually, if you want, we will have to present to you. I think, initially, we will have to arrange separately because these things cannot be explained in such a manner. And perhaps you are asking for sensitivity, so we will show it separately, how we have done it. We have done on all fronts what kind of risk should be there. All those have been analyzed. And as I have said it clearly, that SBICAPS has prepared our report, financial analysis report. And they have considered almost sensitivity analysis of 11 scenarios, which include increase in product cost by 10% and 5% decrease in product price. All those kinds of things have been done.So, indefinitely, project IRR will vary in each case. So, it has to be. So, we have done all kinds of things. There is an increase in CapEx in project cost that has been analyzed. There is any decrease in capacity utilization that has been analyzed, increase in OpEx by 10%. All those things have been analyzed. But these things cannot be explained over the phone like this. So, we will have to make a visual presentation on that.If you want, we will display all those things to you. But right now, I can tell you that those things have been taken care. And SBICAPS has done all the sensitivity analysis. And after that, we have taken a conscious call.

[Debabrata Satpathy, executive]

Yes, to add to that, let us also plan for another call or something. We have to plan which mode, whether a telecall or a kind of a –

[Vinod Mishra, executive]

Microsoft team can also be like that. So, that will make a presentation also, if you need. But it will be all these specific PDH, PP only. The rest of the things will be covered here. So, that it will be the sole question which will be remaining to be further explained to the market.

[Kirtan Mehta, analyst]

Just one more question on the Dahej expansion which is underway. Could you tell us about the project progress across different modules and the current expectation of the target date?

[Vinod Mishra, executive]

This expansion of Dahej terminal is, in fact, going on. And our target is almost March 2025. It should be ready, expansion. So, April, May 2025, it should be operational. This is how we are going ahead. And total CapEx, is very low. It is low only INR 570 crores total from 17.55 MMTPA to 22.5 MMTPA. So, this is on time. And as I said that both the phases from 17 – this is in 2 phases – from 17.5 MMTPA to 20 MMTPA and 20 MMTPA to 22.5 MMTPA. So, both will be completed by March 2025. So, after that, it will be ready for operation.

[Operator]

The next question is from the line of Sanath Kumar from Value Research.

[Sanath Kumar, analyst]

So, first of all, thanks for providing me this opportunity. I have only 2 questions. One is what has been the reclassification tariff, in last 2 years? And the second question is the LNG price. Have you seen any hardening of the spot and short-term LNG between the 2 quarters this year?

[Vinod Mishra, executive]

As such, there is no hardening of the prices, as you are telling. And the reclassification tariff, I should tell you, we are charging 59.91 per MMBTU. And for Kochi, we are charging almost 85.09 per MMBTU. So, this is the tariff for Dahej and Kochi.And as far as the hardening of the LNG price is concerned, spot market is a little bit volatile now, but it is around $15 almost. But otherwise, long-term prices, which we are buying from Qatar, is around $12. So, this is how prices are there. And they are likely to remain so in the next, I think, it may go back to winter season, it may go up to $17, $18, not more than that. This is our anticipation. And this is also anticipation of the market. They are also not anticipating too much of volatility in LNG prices in winter season, because Europe has already accumulated more than 98% of the inventory. So, there will not be any panic buying by European countries in this winter season. So, keeping that in view, we hope that prices will remain like this from $15 to $17, $18 maximum up to winter season.

[Sanath Kumar, analyst]

Okay. And the last question is basically related to the fact that the demand for polypropylene and all those things that we are coming up with, do you see a very healthy uptake in demand in the next 7 years? Or is it going to be on an average, which we have been seeing in India for the last 5 years?

[Vinod Mishra, executive]

It is going to be uptake, because we have analyzed everything that how many cars are going to come up in the next 5-year, 10-year period, and what is the demand it is going to be. Entire analysis has been conducted by a consultant, and he has shown in the consultant. We will cover this in the presentation later, whenever we are putting all these details. But there is a shortfall still as compared to the demand in terms of supply.So, keeping that in view, we have taken this cautious call, because these are the questions normally raised by members in the board also. And we have explained it very well that a study has been conducted. And in India, there is an uptick in the demand in the time to come. And compared to the demand, the supply part is lacking. So, even if we bring this plan, still there is a shortfall in terms of meeting the demand.So, this is how we have been, but we will cover this in presentation we will make for this special presentation for PDH, PP plant later sometime after informing all of you. And this will be shown to you there, and what is the demand perspective in the next 5 to 10-years of PDH, PP mainly.

[Operator]

The next question is from the line of Niharika from Aequitas Investments.

[Niharika Jain, analyst]

What has been the re-gas revenue for the quarter?

[Vinod Mishra, executive]

Regas revenue has been INR 598 crores.

[Niharika Jain, analyst]

INR 598 crores.

[Vinod Mishra, executive]

Yes.

[Niharika Jain, analyst]

Okay. And update on the storage tanks of Dahej as well as Kochi?

[Vinod Mishra, executive]

Kochi, there is no storage tank construction right now. But at Dahej, it is in full swing and on target.

[Niharika Jain, analyst]

So, we are planning to finish it by September '24, right?

[Vinod Mishra, executive]

Before that, it will be completed. Before that, by June, I think, it should be completed next year.

[Niharika Jain, analyst]

Okay. And so, I just read an article that Dhamra Terminal is started now and the tariff is lower than Petronet by some 1% or 2%. So, do we feel that we will be losing some?

[Vinod Mishra, executive]

No, no, no. This is absolutely absurd news. As far as I know, Dhamra's tariff is higher than Dahej's terminal tariff. I can tell you if you want. It is around INR59 of Dahej and that is more than INR 60, approximately INR 60.18. It is on the higher side. So, you do not get confused. It is not correct.

[Niharika Jain, analyst]

Okay. I understood. And on the PDH, PP, so with the Deepak Phenolics, which we have tied up with, so are we planning to tie up the whole 100%? See, 50% already we have tied up to 50% and are we planning to tie up the whole facility? So, what's the plan for this thing?

[Vinod Mishra, executive]

No, it's not right. See, I am telling you again. Let me clarify. I am not admitting correctly the total capacity of PDH is 750 KTA. Out of 750 KTA, 250 KTA has been tied up with 1 party, which I just told you, Deepak Phenolics, and 500 KTA of propylene will be converted to polypropylene. That should be sold in the market. So, it is like that. But that part has not been tied up, because that is market driven. And if you look the crack, that the margins, the spread, which is very high, because if you see the propylene price, it is around 600 per metric tonne, 700 per metric tonne. And if you see the prices of PP polypropylene, it is around 1,200, 1,300. So, the gap is big. That is why we have decided to come in this business, because the margin is very high. Maybe sometimes it is not that high, but that cannot be a reflection of the -- for entire period of the project life.It's a cyclic in nature. So, you cannot say that this will remain only on the lower side. So, what I have got -- what we have done, we have taken the average while doing the sensitivity, we have taken an average of 7 years price. The 7 years price is good to reflect the right price, because it eliminates all kinds of uncertainties or whatever fluctuation it might have taken over a period of time.So, we feel that even though margins may be some year less, but if you take the average of 5, 6 years, 7 years, it will bring the true picture and that margin is good as per our analysis.

[Niharika Jain, analyst]

Understood. And so, we were also planning a third jetty at Dahej, which was also supposed to handle propane and ethane. So, is this the ethane handling which we are talking about, which is a part of INR 21,000 crores or this jetty INR 1,700 odd crores for this jetty is altogether different?

[Vinod Mishra, executive]

Jetty part, we have already got approved, because bigger the jetty it should handle all three products, LNG, ethane and propane. So, it is not part of a project. It is already undertaken, because in any case, we have to bring the jetty. So, we have already done that and CapEx is around INR 1.645 crores, INR 1,656 crores like that. But this is not part of project.

[Niharika Jain, analyst]

You mentioned some INR 2,500 crores of ethane handling that is separate and which is a part of it?

[Vinod Mishra, executive]

That is the inside battery limit of plant. A jetty part is different, because you see the Dahej jetty, it is 2.5 kilometers away from the plant. So, there has to be a pipeline laid to bring the product to bring this propane, LNG and ethane to our plant.From that part, I am talking of jetty. And if you see INR 2,500 crores, it is inside the battery limit, we have to create tank for ethane and other facility for operating that tank. So, that is costing around INR 2,500 crores.

[Debabrata Satpathy, executive]

Which is part of 21,000 crores?

[Vinod Mishra, executive]

Which is part of this INR 21,000 crores? INR 2,685 crores.

[Debabrata Satpathy, executive]

INR 2,685 crores.

[S. Ramesh, analyst]

Operator, we will take one more question.

[Operator]

Sure. The last question is from the line of Gauri Anand from Old Bridge Capital.

[Gauri Anand, analyst]

My question was on the future LNG supply. I mean, how should we think about it now that we know that Qatar is adding a lot of capacity? We know there is some capacity, which is idling in Russia. We know all this large exporting, LNG exporting countries are moving to alternate fuels. You are a very formidable player. You are expanding your capacity. How should we -- and we -- our consumption is very, very small in the global scheme of things. So, how should we really think about future availability in light of the supplies coming out of all these exporting nations?

[Vinod Mishra, executive]

See, if you look at the supply side of LNG, it is going to increase in the future to a great extent, because many of the facilities are coming up in the next 3, 4 years, maybe by '27, 2027. So, almost 150 MLTT of capacities will be more there, and even more than that.So, what I am envisaging is that the availability will be huge, and there will not be a lot of LNG in the market. And it looks now that LNG is in high demand, and there is a scarcity of supply. It looks nice, but after 3, 4years, it will not be so. Qatar is already expanding its projects from 70 million tonnes to 126 million tonnes. So, definitely, there will be sufficient LNG in the market [Technical Difficulty].In India, the consumption is going to increase for LNG, because if you look at the kind of trust which is there of the Government of India to increase the consumption of gas and make India a gas-based economy, and simultaneously, they also want to increase the share of natural gas from 6% to 15%. So, I think the alternative to this natural gas or other fossil fuel is not ready as of now. Maybe after 30, 40 years, maybe there, and it's still, if at all something is to be eliminated, all those fossil fuels like oil, petrol, diesel, or coal, they have to be eliminated. Gas will continue for next, I think, more than 100 years, because it is still a very pollution-free and clean fossil fuel, and it can complement with renewables. It can complement with other sources of renewables like hydrogen and others, because see, it's not -- it's a basket of energy. You cannot say any development of energy flows at the cost of replacement of others. It's still, so many years have gone, and coal could not be replaced.See, the first priority of the government is to replace those highly polluting fuels like coal and, if at all, to some extent, oil, crude oil, all those things. So, these are to be done first. The natural gas has to be promoted, and government will continue to promote it. So, in my view, the consumption of natural gas is going to increase in the future. It will not come down. And other alternatives will come. They will also decrease, because the demand is going in a big way, so…

[Gauri Anand, analyst]

Right. No, I get that, sir. I just wanted to know on how should we think about supply security, especially the long-term supply security? And if you can specifically offer comment on Russia, sir? I mean, as much as we could strike a deal and lap up all the crude from Russia, a lot of the thing was actually piped into Europe, and it's all idling now. Is there an evacuation challenge? Or if you can comment on Russia specifically, that would be helpful.

[Vinod Mishra, executive]

Supply side, first I will comment that how much contract India has. India has around 20 million tonnes of contracts for energy, taking all these together, because petroleum has 7.5, plus 1.4 to 7.5 million tonnes with Total Gas, 1.4 to 1 million tonnes with the ExxonMobil, around 9 million tonnes, and another 1 million tonnes. So, around 10 million tonnes, you can say, we have. And apart from that, others, GAIL and IOCL and GSPC, they also have contracts. So, total 20 million tonnes contracts are there.Now, if you see in supply side, how we will ensure more contracts are being entered in time to come, and you will see that there will be enough long-term contracts. So, the people have realized that there should be long-term contracts only, because the spot prices we have seen last 2 years, how volatile they have been in the past 1 or 2 years. So, it is not a supply source, which is dependable. So, long-term contract is a solution. And in fact, whatever contracts we have, more contracts will be entered, and many buyers in India are going for that kind of contracts throughout the world.Second question is regarding Russian supply. Russia used to supply to a great extent to European countries through pipeline. But as far as the facilities are concerned, there is no LNG facilities kind of thing readily available. There is no -- they have 2 projects.

[Debabrata Satpathy, executive]

Yes. One is EMR and another is Sakhalin-2, but both of them have long-term contracts tied up. And the long-term offtake just like Japan, China continue to offtake volumes from these projects. Another project, which is Arc2 LNG energy project, because of the sanctions, that project is now in a limbo, because they are not able to get technology support. So, there is no new project which is coming up in the near future, except some of the small projects of 1 million tonne also. There is no surplus LNG supply that's what we need.

[Vinod Mishra, executive]

So, the question is that how there is supply constraint. Yes, there is supply constraint. Whatever gas is available in terms of energy, it has already been tied up. And for balance, there is no liquefaction market supply. So, you can say that European gas which has been curtailed, there is no immediate plan of Russia to sell that through LNG route.So, we cannot -- it is not for sale as of now. So, I think China is drawing maximum gas through pipeline, because China has got a pipeline from Russia. So, they are coming to the Russian rescue. And perhaps there is no LNG [Technical Difficulty] as of now, by putting even though that sanction are there on Russia. So it is not feasible as of now.

[Operator]

We take this as the last question. I would like to hand the conference over to Mr. S. Ramesh for the closing comments.

[S. Ramesh, analyst]

Hello, thank you. Before I let you go, sir, I would like to ask a couple of questions. One is in Kochi, we still see the capacity utilization is subdued. So, given that the LNG prices have declined substantially, do we see improvement in the utilization of Kochi in the second half or sometime in FY '25? How do you see that situation?

[Vinod Mishra, executive]

Basically, see, it is all about the cost of alternate fuel versus LNG. So, yes, we do see opportunity of few customers which went in the year 2021 on oil products after running on gas for a few months. And hopefully, because oil has gone up and with European storage almost at 98%, 99% and winter prices are subdued as compared to the last year. So, we do expect LNG would be competitive to alternate fuel and the capacity utilization could increase. But it's all about like geopolitical crisis now going on between Israel and Hamas. So, keeping fingers crossed, it's unpredictable.

[S. Ramesh, analyst]

Okay. Then a housekeeping question, can you share the details regarding inventory gain or trading gain and the India's impact?

[Debabrata Satpathy, executive]

Yes. The trading gain, just to confirm, yes, trading gain has been INR 19 crores and inventory gain has been INR 124 crores.

[S. Ramesh, analyst]

Okay. And what about India's impact with the currency?

[Debabrata Satpathy, executive]

Yes, the India's impact is INR 161 crores positive at gross margin level, INR 37 crores ForEx loss, INR 8 crores of positive at the other expenses level, then depreciation INR 84 crores and interest finance cost INR 72 crores.

[S. Ramesh, analyst]

Okay. Thank you very much. With that, we drop curtains on this call. Let me thank the management of Petronet LNG for taking time out for this earnings call on behalf of Nirmal Bang Equities. I also thank all the investors for participating in this call. Thank you very much and have a good day, and wish everybody a Happy Diwali and season greetings. Thank you very much.

[Vinod Mishra, executive]

Thank you. And Happy Diwali to all of you. Thank you.

[Operator]

Thank you very much. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.