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Petronet LNG Ltd
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Ladies and gentlemen, good day and welcome to the Petronet LNG Limited Q4 FY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vidyadhar Ginde from ICICI Securities. Thank you, and over to you, sir.
Thank you. I will hand over the call to the management team of Petronet LNG. So over to you, sir.
Okay. Can we start now?
Yes, yes, please.
Yes. A very good morning to all of you. This is V.K. Mishra, Director Finance, Petronet LNG Limited. This year, results have been very, very encouraging. And if you look at the throughput of our Dahej plant, it has been highest ever. It has processed around 885 TBTU as against 820 TBTU in the previous year. And if you look at the overall performance, it has been 928 TBTU against 844 TBTU in the previous year. And if we look at this quarterly performance, Q4 results, so throughput has been a little bit less because we all know that COVID-19 has impacted the processing of gas also because demand has been shattered. And people -- most of the people have started not using gas like CNG and other factors, even refineries have started using less gas in that period. So there has been tepid demand in this last week of this March. So there is less throughput in that particular month. It has been less by almost 17 TBTU, if you look at the overall performance. So overall, throughput has been 206 TBTU as against 220 TBTU in the previous year and 199 in the corresponding year in Dahej plant. And overall processing, Dahej and Kochi has been 219 TBTU in Q4 as against 233 TBTU in the previous quarter and 205 TBTU in the corresponding quarter of the previous year. And the overall financial performance, the PBT has been INR 3,111 crore against INR 3,234 crore in the previous year. So this reduction is just because of this Ind AS 116 implementation this year. And because of that, there has been reduction in PBT to the extent of INR 500 crore. And as far as the PAT is concerned, it has been higher than previous year. It has been highest ever. And it has been INR 2,698 crore against INR 2,155 crore in the previous year. So there is a growth of around 25% from the previous year. But this growth is mainly attributable to tax rate, which we have selected, which we have chosen, which is 25.17% as against 34.94% in the previous year. So because of that, the deferred tax liabilities have also been reduced. And current tax also has been calculated at 25.17%. So this is a major reason that PAT has increased. But if we look at Q4 results, it has been a little bit less because of COVID-19 impact. And the PBT has been INR 486 crores as against INR 902 crores in the previous quarter and INR 655 crore in the corresponding quarter. PAT has been INR 359 crore in the current quarter against INR 675 crores in the previous quarter and INR 440 crore in the corresponding quarter. So this has been the financial results for Q4. And the main reason, one thing I would like to just emphasize here that AS 116 has been implemented. Impact of this Ind AS is that whatever operating leases were there like charter hiring of the vessels and leasehold land and tug boat hiring, all these have been treated as finance lease. So because of that, we had to recognize tangible asset right-of-use to the extent of INR 3,829 crore. And correspondingly, we have to show the liability of the financial liability. So this is a way of treating finance lease. That's why in the initial period, this profit will be less because higher depreciation and higher finance cost will be debited to profit and loss account. But in subsequent years, after 2025, it will be reduced and profit will be higher in those years. So ultimately, there will not be impact on the overall period. And this is only the time gap, you can say, differences, and over the period of lease, this will be neutralized. So this is the major highlights. And then 1 thing I would like to just emphasize here that the company has declared 70% dividend on equity. This means INR 7 per share. As compared to last year, when we had declared 100% dividend, this year, we have declared 125% dividend to the shareholders. So that's all from my side. Now house is open for the questions.
[Operator Instructions] The first question is from the line of Swati M. from COMGEST.
First question is maybe if you can give an update on how the Qatar negotiations are going on. Whether the force majeure clause that you have invoked that has been accepted? That was part one. And then the second question is, again, I mean, I was reading the interview of Sanjiv sir and he was saying that the formula also, they would ideally like to be delinked to the crude prices. So on these 2 things, if you can give us some update. First question will be that.
Yes. This Qatargas negotiation part, I will not say anything right now because this process is still being under process, so we cannot comment right now what is going on in Qatargas negotiation. But of course, we have written letters to them, and things are going on. But as soon as there is some concrete things coming up, then only we can say something about that. These are all premature things which should not be discussed in open forum because this is something which has -- this is very sensitive. And we cannot disclose all the things what's going on. But as soon as there is something concrete coming out of the calibration, certainly, we will disclose it to all of you. The first question is that. And the second question is the force majeure clause. This is true that we have invoked this force majeure clause this year. And in March also, we have invoked one of the cargoes under the force majeure. And 1 cargo, we have deferred in March. But in April and this May, we have done it. So total number of the force majeure cargoes are around 8 in case of Qatargas and 1 in case of ExxonMobil. So this is how it is going. But as you have rightly said, they have objected to this force majeure, but we are trying to convince them. And hopefully, we'll work out the solution. Because as per contract, this is admissible, I have read the contract, and it's very clear that any kind of epidemic or any kind of pandemic happening, then this force majeure clause can be invoked. So as far as contractual terms and conditions are concerned, we are very strong on those footing. So we are hopeful that they will also agree to it. They have objected to it, but they have not given any reason why it is not a force majeure. So we hope that we can resolve it mutually. And certainly, this will be resolved very shortly. That's all.
Okay. Okay. Understood. Did you make any special provisions this quarter? I mean can you explain why there was a shoot-up in the other expenses?
Debrat will explain. Debrat, please.
Yes, this is Debrat. The other expenses, I'll explain at one go for the year and the quarter both, as it has been told that for the year and it has been given in the note also. For the year, INR 500 crores is the impact of the Ind AS lease. The bifurcation of that is INR 222 crores regarding the lease impact, which we had already explained to the investors, that against the straight-line expenses, the lease impact will have initial -- in the initial years, there will be more charge to the P&L. And later on, it will be less charge to the P&L. So in the initial years, there will be more accounting loss. And then in the later years, there will be less accounting loss. So the impact of that is INR 220 crores. That is a normal lease impact. Second is the INR 278 crores. That is the impact of the ForEx, restatement of the lease liability because these leases are majorly -- the lease liability is contributed by the ForEx, by the time charters that we have taken. So there is a lease liability of $471 million equivalent in the books that was taken. So as you know that during the year, the rupee has depreciated by INR 6. That is why the impact of that has come to INR 278 crores. So the total impact over the year is INR 500 crores. And in the quarter, the total impact is INR 238 crores for the lease, out of which INR 60 crores is the normal lease impact and INR 178 crores is the ForEx impact because the rupee depreciation happened INR 4 -- by INR 4 in the last quarter only. So the major ForEx impact comes in the last quarter only. Apart from that, there is a contribution to the PM CARES Fund, that is INR 100 crores. That comes in the other expenses. And for the overall year also that you can take that as the -- as part of the other expenses. So that is how it is placed in the other expenses. So if you see in the quarter, the other expenses would be inflated by around INR 280 crores to INR 300 crores due to these 2 reasons. And overall year, it is around INR 380 crores to INR 400 crores in the other expenses portion.
Okay. Understood. Maybe 1 last data point from my end, then I'll join back. The trading part -- trading gains or losses this quarter, would you be able to give us a number?
Hello?
Hello?
Yes, what's your question?
The trading on the spot part which is not already tied out, the loss or gain for the quarter and for the year?
What prices are you talking? Debrat, you just see it. What...
Yes. You're asking about the spot trading?
Yes. Yes, is there any trading MTM loss recognized this quarter or any loss on the trading part, yes?
Actually, because of this impact of the spot prices going down, it is not like the last year. Last year, the inventory was also high and the fall was also very sharp. So we recognized a loss of INR 119 crores last year. But this year, actually, spread through this year, the total impact is around INR 44 crores because the inventory was less. However, the prices have fallen down. Prices have been half of what we started with in the year. But over the year, there is a total loss that has been booked in the accounts is INR 44 crores.
But what she is asking, there is no trading loss as such.
No trading loss is there. It is only accounting impact that we have taken.
It is basically on the inventory we are holding. On trading side, we have continued to make our normal margins, which we have been making. So that's what Debrat is saying.
The next question is from the line of Nitin Tiwari from Antique Stockbroking. [Operator Instructions] The next question is from the line of Tarun Lakhotia from Kotak Securities.
Just a follow-up on the previous one. The inventory markdown of INR 44 crores is for the full year, right, not for the quarter?
Yes, that is for the full year. And in the quarter, it was INR 31 crores.
Okay. Understood. So my questions are, one, could you provide us an update on your discussion on Kochi regas charges? Like when is it expected to finalize? And have you taken a 5% escalation from this year onwards as it should have been?
Yes, yes. Just a minute. I will just explain the whole thing. This year, our Board has approved this reduction in Kochi regas charges from INR 104 to INR 79.14. So this has been approved, and accordingly, credit note has been issued for the financial year '19/'20. So right now, it is INR 79.14 only. But again, the offtakers have raised some query that it should be reduced further. So we have actually formed a committee of directors, which is analyzing entire issue again, but it has been clarified by our Board that whatever reduction we do, there should not be impairment of Kochi asset. So what we are ensuring that we are doing impairment testing, and if we find that -- and it is INR 79.14, which is good enough, so that there is no impairment, but if it is reduced beyond that, then there might be some impairment of the Kochi asset. So as per the mandate of our Board, we are trying to convince the offtakers that we can reduce only up to the point where there is no impairment of Kochi terminal. So that discussion is still going on with our independent directors committee and offtakers are also part of it. So I think this will be resolved because we don't have to carry out any impairment of our Kochi terminal. So I feel that it should remain at INR 79.14, which is right now we have already reduced.
Sir, just to understand it slightly better. So when you say that there is no impairment, of course, it will be a function of the quantum of volumes that you may get over the next few years, which may be the discussion with your offtakers. And a no-impairment scenario means that it's a 0% IRR project, which is what we're trying to project right now? Or is it -- I don't know. So how are you going -- if you can just throw some light on that, that would be great.
Yes. Actually, what we are -- our impairment testing is an exercise which we are undertaking because we have to see that there is some carrying cost of the asset, like we have this around INR 3,300 crores, Kochi terminal. So that carrying cost of asset is not less than the future cash inflows, which will come through this terminal. So that is the testing basically. So we have tested it, and we found that last year, it was almost INR 75, the breakeven point, where there was no impairment. This year also, we have carried out, and it is around that only. So what I'm saying that we are still a little bit on the higher side as far as this Kochi tariff is concerned. There is no impairment. But as a matter of fact, this is -- basically testing is based on certain assumptions. So those assumptions are sometimes from the time -- for time being, they are okay, but in future, they may change. So we may have to test it again next year also. And then again, so on, we have to test it. So I feel that IRR here, if you are saying, we are still having some margin. But as far as the total profitability of Kochi terminal is concerned, it is still not profitable as such. So what we are anticipating that after this upcoming Kochi-Mangalore pipeline, which is likely to -- which was to be commissioned in June itself, but it has been delayed, I think now it will be around July 31. So when this pipeline is commissioned, then our capacity utilization will increase to almost 35%. So this is our -- 30% to 35%. So I feel that we are waiting for that, and we have taken that also in our impairment testing. So I think this kind of saying that 16% IRR is, you are rightly saying, but as you think that we are not utilizing it fully, so whatever we are getting is good enough, and -- at least, still, we are above the breakeven level. So that's the conviction we have right now. And if you look at the charges of other terminals, they are very less. So that's why there's a pressure on us. If you look at Mundra also, there are also around INR 63 or INR 64 and Dabhol also around INR 66 earlier, but I think they have reduced it. So we have to look at the market also, what's going on. So accordingly, we have to just adjust it.
So can you say that, if the volumes remain at around 35%, 40% utilization, let's say, in the next, whatever 3, 4 years, and in the medium to long term, is that the assumption that you are making to ensure that the INR 3,300 crore of carrying cost is fully recovered for you in the INR 79 assumption?
Yes, yes. It is not less than that, more than that.
Tarun, 1 more just additional point on this, Vivek this side. So when you said IRR, so of course, when we are taking the future cash flows, we are being discounted at the weighted average cost of capital, so -- which obviously factors in your IRR question...
Which is the 16%, which you usually assume for capacity utilization?
So of course, that WACC is calculated as per the capital asset pricing model.
Yes, actually, I think 16% is something, but 16% is good for the project when we are undertaking any projects. But right now, whatever impair testing is done based on the current debt/equity ratio of the company. So that is the basis right now because whatever debt, whatever equity we have right now, so auditors do on that basis.
So understood. Basically, it is still in double-digit number, whatever is the current number. It is at least not like a [ 0-9, including... ]
Yes.
Understood. On a related note, is there any pressure that you're seeing on Dahej regas charges because of these new terminals coming in? Of course, I understand that your tariffs are already on the lower side and some of these are -- most of it are long-term contracted, so that gives us a lot of comfort. But the returns issues on Dahej has undoubtedly been higher. And of course, I mean, with all the kind of volume expansion and utilization that you have achieved, it would -- it had happened. So -- but having said that, is there any pressure at all from offtaker side?
No, no. There is no pressure on that.
So that 5% escalation remains intact, which is comfortable, right now.
Right now, it is intact. This is as per contract.
Last small one, if you can provide any update on Tellurian discussions, if there is one going on right now.
Tellurian discussion, I just don't want to disclose all these things because this is still under consideration of the Board. So once this is decided, then we will disclose this fact. But right now, there is no comment on Tellurian.
Can we say that the spot LNG prices remain as low as like $2, $3, $4, which is probably going to be the case for the next several months, it's unlikely that you will go ahead with the project? At least, can we conclude that or [ you will just keep it open-ended on that? ]
I have no comment on that. Sorry.
The next question is from the line of Amit S from BNP Paribas.
Just 2 questions. First one, how is the volume offtake that you are seeing for Q1? I know, at least like half of it would be probably impacted by shutdowns. But are the -- is the terminal back to 100% now?
Yes, yes, 100%.
Actually, on the Q1, actually, we are at the end of Q1 right now. We cannot confirm more than that.
Okay. So currently, the terminal is back to 100% right now, sir?
It is back to, but April and May have been affected. Of course, we just brought down to around 60% of the capacity, up to 60%, 55% or so. But then we started picking up in the month of May. And now if you look at June, we are fully recovered and doing as per the normal processing of the gas. There is no downfall now as we are opening up.
And the other question, sir, the -- and the contribution to the PM CARES Fund, INR 100 crores, that's a onetime thing, right? Not an annual contribution?
It's a onetime, onetime. Yes. Yes. It's a onetime.
So you wouldn't expect to do it for FY '21?
For FY '21, actually, whatever is the norms of the Companies Act, that will be followed. So if you see that in the previous year, there was some deficit in the CSR expenses below the norms, basically. So probably this PM CARES contribution sets off that thing. But in future, you can take that whatever is the norms of the Companies Act, that will be followed by the company.
One more thing I would like to explain, if you look at the CSR expenditure of the previous year, it was almost to the extent of almost INR 93 crore, which we had to incur. So we have incurred a little bit more than that, around INR 25 crores more than what was required. But this was due to a good cause we have to do because this was a very testing time for all the people of India. So we have to come up and do this because this was required at that point of time. But as you look at INR 92 crores, we had to spend in any case on CSR expenditure. Had we not done it, then there would have been shortfall in the expenditures. So likewise, there is a percentage of 2% of 3 years average profit which we have to spend on CSR. So to fulfill that obligation, we will do in any head, including this PM CARES Fund.
Sir, my only point was, there is no pressure from the government for [ expenditure ] ?
There's no pressure. It's not a pressure. We are doing on our own.
Okay. And just last question, the CapEx plans for '21 and '22, if you can?
Debrat?
'20, '21, CapEx plan is INR 348 crores total. Basically that includes, I mean, INR 126 crores for the small-scale LNG. And for the tanks -- the 2 tanks are expected to be awarded in Dahej. The initial INR 60-odd crores is there for the 2 tanks for the advance and all. And there is an expenditure earmarked for the corporate office that is being built at Delhi. There is another INR 70 crores for that and other miscellaneous costs are there in the CapEx. So the total CapEx is INR 348 crores for 2021. And '21/'22, actually, the budgeting has not been done because few other -- maybe Director Finance can explain it more. Few projects are under consideration right now. As and when they will be fructified, CapEx for that -- approval for that will be taken from the Board during the year.
The next question is from the line of Ramesh from Nirmal Bang.
First, can you clarify the regas revenue in rupees, of course, for the fourth quarter?
Yes. Yes. Regas revenues are INR 523 crores.
INR 523 crores. And if you further look at the spot cargoes, how are the margins compared to the normal regasification margins? There's essentially some increase in the margins there?
The spot cargoes, Vivek, would you like to...
Vivek, please.
See, on spot, typically, we have been earning $0.20, $0.25. So that normal margin continues. In some cases, it is $0.35, $0.40, some cases it is $0.20. So on an average, around $0.30.
Okay. The second thing is, can you just explain this impact of lease accounting in terms of the reduction in other expense because other expense has a lot of charges loaded. So just if we see lease accounting in perspective, what is the amount of other expense which has come down because of the lease accounting?
Other expenditure over the year INR 278 crores because of the ForEx loss. And in the quarter, it is INR 178 crores.
No, -- this is the ForEx loss component. No -- on account...
ForEx loss on the lease liability.
Yes, that is a charge to other expense, right? So usually, your other expense goes down because of the lease accounting getting shifted from rental to interest and depreciation? So I'm asking what is the amount?
No, no, that is at the -- actually, that is at the gross margin level. Basically, the direct expenses go down, and that is why your EBITDA goes up basically due to that.
How much is an adjustment in the gross margin because of the lease rental going up?
No. If you ask me about the lease, let us be clear about 2 things. One is the lease impact, another is the ForEx impact. Let us take out the ForEx impact, basically. This is the first year of the lease treatment, so -- and INR 6 of ForEx depreciation was there. So the ForEx impact goes to the other expenses in any case, it cannot go anywhere else. So INR 278 crore went into other expenses as far as the ForEx impact is concerned. And as far as the lease impact is concerned, at the gross margin level, basically, about -- I mean, the total impact of that is INR 222 crores, at the gross margin level INR 450 crores has been taken out -- I mean, INR 450 crores was the straight line, I mean, expenses that we would have done, but INR 222 crores more has come because of the finance cost and the depreciation. So this is what is the explanation to that. So the normal lease impact doesn't touch the other expenses basically. Other expenses is touched by the ForEx impact.
No. So these numbers you mentioned are for the quarter or for the year?
For the year -- actually, to clarify again, INR 500 crore is the total lease impact. Out of that, INR 222 crore is pertaining to the lease per se and INR 278 crores is the ForEx impact.
So these are the charges basically?
Yes, yes. And it is the accounting impact, actually. There is no cash loss or anything else. And for the quarter 4, the total lease impact is INR 238 crores. Out of that, INR 60 crores is the normal lease impact and INR 178 crores is the ForEx impact. Because in the quarter 4, the depreciation happened by INR 4 [ for the ForEx. ]
Okay. Now if you were to look at your plans for LNG distribution, there were some reports reporting that you are planning to increase from 10 or 15 to about 300 and then to 1,000 in a Bloomberg seminar. So what is the current thinking on the LNG distribution ramp-up over the years?
Yes. Actually, if you look at our plans, if -- you must have read it, that PNGRB has issued a clarification on 2nd of June, whereby they have clearly indicated -- are you getting?
Yes.
Where they have indicated that anybody can set up LNG dispensing station, even if they are not authorized for that GA. So that is a big news for all of us because now we had -- earlier, we had a confusion, whether we can start a LNG dispensing station or not. So we were tying up with all the CGDs and OMCs for putting up LNG dispensing station. But now we are free to set up any LNG station anywhere. So this is a big news because now there's no restriction on distribution of LNG because PNGRB regulations are very clear, and they say that if there is a supply through pipeline, then only PNGRB regulation will be there -- applicable. But otherwise, there is no applicability of PNGRB regulation because we shall be putting up those tankers for selling those LNG dispensing stations. So there is a free playing field -- there's a level playing field for this kind of LNG dispensing station. So now we have planned in 3 phases our LNG corridor development. In the first phase, what we are doing, we are putting up 50 stations on 5 major highways, which include western corridor and southern corridor. So the time period is around '20, '21. And then in the second phase, we plan on all the highways around 300 LNG dispensing stations. And then beyond that, we have plan of 1,000 stations. One thing I would like to clarify that we are not going in retail business. Most of the cases we shall be tying up either with CGDs, OMCs or some other players because our intention is not to go too much in retail. Basic intention of putting up all these things is to invoke this business vertical so that we can enhance the uses of LNG in automotive sector, especially the long-haul trucks and the long-haul -- this interstate buses. So this is our basic intention, but we have already said to OMCs and other companies whosoever want, they can put up. If they are doing, it's fine. If they are not able to do, then we are ready to partner with anybody, including OMCs and CGDs, and we will help them putting up all those stations. And right now, we have also entered in this -- entered one MoU with the Gujarat Gas, whereby we are putting up 5 stations in Gujarat, LNG dispensing stations on Delhi-Mumbai Highway, and 3 stations are being put up by IGL. So Delhi-Mumbai Highway shall be covered by this almost 8 LNG stations in a few months from now. And then another thing which we want to say, as you must have known that this is chicken and egg story, how -- whether to create infrastructure first or whether to create some trucks which are running on LNG. So we are trying to instigate that kind of thing also. And we have plan to -- initially have those fleet on us to have some retrofit kits for this LNG. And if required, we shall also assist them in putting up those LNG kits in their trucks. And then we will try to test it on a pilot basis. If this is successful on 1 highway, like Delhi-Mumbai, then we shall further augment our other highway projects also. As I have told you, there are 3 phases. And in third phase, it is pan-India basis. We have plan of 1,000 LNG stations. It doesn't matter whether we have 1,000 stations or anybody has. What we want that there should be LNG stations whosever may put up those stations. But if you look at a scenario before that, this is only Petronet LNG , which has, in fact, instigated this sector because otherwise, CGD had no plan to do this kind of LNG dispensing station, and any case, these OMCs also were not very keen to do it because they ultimately are selling diesel. So this will ultimately cannibalize their own diesel if they put up the LNG station. But once we are there and we are trying to invoke this vertical, so now everybody is in a hurry to do it because they also fear that the market share of this road transport will be lost through this LNG.So now they themselves are coming up, and we are partnering with them also. I feel we have signed 1 MoU to -- for putting up around 5 stations in Southern India -- on southern highway. And the plan is that the Golden Quadrilateral East-West and North-South highways are covered there. And of course, now you will see a surge in this kind of LNG dispensation around the highway. So only...
If I may ask -- sorry.
Yes, yes, continue, please.
If I may ask a follow-up question on that. Now how will Petronet LNG get any returns or margins on the LNG you sell for this auto fuel business?
This is actually -- what I'm saying that we will import LNG, we have LNG and then we'll sell LNG, and we'll get marketing margin on LNG. So this is our whole plan because we want to be in B2B business. We have no plan to do B2C business. So this is the concept we are following now. So ultimately, purpose is to enhance the usage of LNG. So ultimately, when that will increase, so we will also gain something in terms of marketing margins.
The next question is from the line of Jeet Gala from Centra Advisors.
Yes. Sir, can you just explain me the business model of Petronet with respect to take-or-pay or use-or-pay? And how is the income being generated to the company with these 2 models?
Vivek, please explain all this.
Sure, sir. So as far as take-or-pay is concerned, so this is a contractual liquidated damage under the GSP, as we call it, gas, sale and purchase agreement, and corresponding under our sale and purchase agreement. So if the contracted quantity is not lifted during the year either by us, then we have to pay to our supplier. And similarly, downstream, if the offtakers are not lifting, then there is a downstream take-or-pay. And these have makeup provisions, which means that this is treated as advance. So even if take-or-pay is levied, it is treated as advance, and subsequently, we have right to take up LNG in the future against this advance at then prevailing prices. This is as far as the GSP and SP is concerned.Secondly, coming to use-or-pay, so the capacity holders, whosoever has booked capacity, if they are unable to utilize the capacity, then they are liable for payment of use-or-pay, which is not in nature of advance except some small exception, which is given in the contract, which has been approved by our Board. Otherwise, it is treated as income.
Okay. So in use-or-pay, the income, which is being accrued to the company, is only regasification charges, right?
Absolutely, absolutely.
And with respect to take-or-pay, you basically have to -- I mean you'll incur some gain or loss even on the movement in LNG prices, right, plus regasification?
So we don't earn anything on the take-or-pay model. That's what I'm saying. Because take-or-pay is advance. So let us say the contract price during last year was $5 and the customer has not lifted, so at $5 rate, he has to give us take-or-pay and, correspondingly, in most of the cases, there will be take-or-pay on the upstream. So we will pay to our supplier. That would be treated as advance. And when the LNG is taken in the future year within the contract duration, then this advance will be adjusted.
Okay. Okay. So technically, in both the models, what you earn is regasification?
Again, take-or-pay, we don't earn even regasification, take-or-pay -- when the actual quantity is lifted, then only the regasification revenue will accrue to the company.
Okay. Okay. Understood. And my second question is, are you seeing any offtake from gas-powered plants because of the lower pricing in LNG?
Yes, that's very true because the current spot prices are very lucrative and some of the very efficient power plants like Torrent or the Gujarat state power plants, they have been consuming LNG -- increased LNG, and that's one of the major reasons why we are seeing a good throughput, as mentioned earlier. So current LNG spot prices -- and I do believe there is some coal switching, which is taking place. Basically some imported coal-based power plants may not be competitive vis-à-vis the current LNG prices.
Okay. And how difficult is to convert -- I mean to retrofit a coal-based power plant into a gas?
I don't think it's very easy, so I'm not talking of coal to gas switching in that sense. What I'm saying is it is gas-based power plants, which are competing well against the imported coal-based power plants.
The next question is from the line of Pinakin Parekh from JPMorgan.
I may have missed the opening comments, so maybe you have mentioned it. But sir, at this point of time, whatever has happened in 1Q has happened. But for the remainder of the year, what is the outlook that you see for Dahej volumes for the next 3 quarters? Do you see Dahej clocking higher volumes compared to last year? And secondly, at this point of time, what is the view in terms of open capacity on Dahej, especially given that there is new capacity which is coming up for the company itself and Mundra is ramping up. So does the company plan to lock any of these volumes now? Or would it like to keep it open?
Just a minute. I would like to explain, first of all, that whatever throughput is there now in Dahej, it will continue. At present, it is almost a full capacity we are using, more than 100%. So what I'm saying that whatever has happened during this lockdown period, that was the only downfall in that Q1 of this current year that may happen. But we are optimistic there should not be because lockdown has been stopped and unlocking has started, so we don't expect there is any downfall throughout the year now. So all 3 quarters, I expect, will be very good and at least 100% capacity will be utilized. If you look at last year also, the capacity available in Dahej was 16.92 MMTPA because last year, the expansion had come on 25th of June and capacity expanded from 15 to 17.5 MMTPA. But the availability of that capacity was only up to 16.92 because number of days were less for that additional 2.5 MMTPA.So we have processed almost 17.38 MMTPA, which is almost as good as 17.5 MMTPA. So even capacity utilization during '19/'20 has been 17.3, even though there was a downfall in the last week of March when the lockdown started. And we have almost less throughput to the extent of 17 TBTU. Almost 3 cargoes were less and then 2 cargoes were not planned. So 3 cargoes were less in that period. So what I'm saying that this open capacity, if you look at, it's not open. In fact, if there is some customer who is ready to book the capacity, we'll do that, but we are very sure that this will be utilized through various spot cargoes, additional cargoes, which customers are bringing. So even last year, we had shown that 17.38 we had utilized, this year we'll utilize more than 17.5 MMTPA. This is our plan. Let us see what happens. There is no firm capacity booking right now for 2.5 MMTPA.
Understood. And sir, second question is that the CapEx number for this year is obviously -- is very low. And while there are new projects being considered, would it be fair to assume that for CapEx to materially pick up from here in FY '21, the new projects would need to be cleared by the Board in the next 1 to 2 quarters? Because if the Board does not clear them in the next 2 quarters, would it be feasible to expect a very sharp pickup in spending in FY '22?
I think you're very right that Board should clear the project. So we have 13 projects in mind. And like we have earlier said that we are trying to put up LNG terminal in -- regas terminal in East Coast of India -- East Coast, Gopalpur. But only thing is we have to get it cleared from the Board. And once that is cleared, then we can think of putting up another terminal there in the East Coast.
The next question is from the line of Sabri Hazarika from Emkay Global.
Actually, I have a question regarding this Ind AS 116 ForEx loss. It's more like a concept question. As you mentioned that towards the latter half of the term, it will be beneficial for the company in terms of lease expenses. So what would be the treatment of foreign exchange gain and loss during that time? For example, after CY '25, will we have a reverse impact of foreign exchange or there will be no impact at all in the other expenditure what we are seeing right now?
Yes. Sabri, this is Debabrata. Actually, the year ended with about -- ForEx rate of about INR 75.2, let us say. So whatever movement will be there from there, basically, that movement impact will be taken in the current financial year. So suppose it goes down again further to INR 77 or INR 78 or something kind of that, then that further -- I mean on the existing lease quantum, the loss will be booked. If it comes down to INR 72, say, for example, then the gain of that INR 4 will be also taken into account. So this is how the ForEx loss will go on alongside the lease impact and that ForEx loss will also be calculated on the outstanding lease liabilities always because the lease liability also will further go down year-on-year, and on the outstanding lease liability, the ForEx impact will be taken. I hope this clarifies.
Right. So by 2025, the outstanding lease liability will become...
No, the outstanding lease liability will keep on going down till, I mean, say 10 years what -- if the lease period is 10 years, then till the end of the lease period. But the -- what you mentioned is about 2025, let me clarify that it is -- that is the point where actually the lease -- normal lease expenses -- I mean when normal lease impact is reversed basically. Say, for example, I have -- let me explain you that if the lease was not there, then there would have been normal expenses at a straight-line basis over the years. But when the lease is there, the lease expenses charged to the P&L in the form of finance charge -- finance cost and the depreciation will be on a downward sloping curve. And the meeting point of that is 2025. So let me keep this lease impact aside from the ForEx impact. ForEx impact is nothing but restatement of the lease liability, basically.
Right. But -- so foreign exchange -- that fluctuation will remain beyond FY '25 also because -- but the normal lease thing will basically get muted because of the...
Yes, yes. And let us not limit it to the lease liability. Any liability of ForEx that is there on the reporting date has to be restated in any case.
Right. Got it. And just 2 small bookkeeping questions. So what was the FY '20 reported CapEx and Gorgon volumes in the Dahej for Q4, FY '20 CapEx?
Can I have Debabrata explain? Debabrata?
Yes. Let me -- Vivek, just can you take up the Gorgon volumes? I'll come to the CapEx number.
Yes. Total Gorgon volume was around 18 TBTUs, of which 7.4% was in Dahej and balance in Kochi.
And the CapEx for FY '20?
Sabri, we can go to the next question? In between, I'll tell the exact CapEx.
Sure. All the best.
The next question is from the line of [ Rahul G ] from B&K Securities.
Sir, just wanted to understand, if I look at sequential gross margins, they seem to have come down by around 12-odd percent. But after taking the tariff increase, why should the gross margin on a per-unit basis come down on a sequential basis?
Debabrata?
Yes. The gross margin -- I think the gross margin is -- I mean more basically. I mean from -- you were telling about the quarterly numbers...
Yes, sir, I'm just looking at INR 1,131 crore for 4Q versus INR 1,291 crore in 3Q. So there seems to be a 12% drop, but we should have taken a 5% tariff increase in Dahej. So why would there be a decline...
Primarily because of volume. If you compare the volume...
Yes. Sir, even if I were to look at per-unit margin also, from INR 55.4, it seems like INR 51.7. So per-unit margin also seems to have declined by about 7%.
And have you factored into the inventory losses?
I thought you mentioned there was no inventory losses...
No, we mentioned that in this quarter, there was INR 31 crore inventory loss.
So even -- even after adjusting INR 31 crores, it seems like INR 70 crore, INR 80 crore drop.
Debabrata?
Yes. Yes. So at Dahej, actually, at the gross margin level I'm explaining. The -- at Dahej because of the volume and rate impact, the net impact is INR 33 crores down at the gross margin level and INR 31 crores down because of the inventory evaluation. And plus, because you can see that the spot volumes have been done more in the quarter 3 than quarter 4, so there is a lower trading margin also of INR 15 crores. So I think that should explain your this thing.
Got it. Got it. Yes, that does explain, sir. And sir, second question is just broadly, I know you can't talk about specific projects, but given that we have almost INR 5,000 crore of cash and you're generating almost INR 3,000 crore now, so if I were to just dwell upon -- what are the -- what is the pecking order of projects that you want to take up in terms of upstream or LNG terminal or small-scale LNG? I mean just in terms of large opportunities, what would be the pecking order?
Yes. Actually, if you look at the CapEx plan in the future, we have planned -- as we have already disclosed earlier also that Sri Lanka we have in our mind. And if we get that, then there is a CapEx of around $300 million. That is our -- one of the projects if it is cleared by Sri Lankan government. And second one, we have a terminal on the East Coast, which we are planning to have. If that comes, then again there will be huge CapEx on that. And that part will take around 3 years, 4 years if it is conceptualized.And another area which I would like to mention from the purpose of CapEx that we want to set up 2 tanks, additional tanks at Dahej, so -- which will cost around INR 1,400 crores. It will take around 3 years. Tendering process is already going on for that. So that is CapEx of INR 1,400 crores. Then we have planned to build another jetty, third jetty in Dahej, which is again expected to have a CapEx of around INR 1,200 crore, INR 1,300 crore. So that is the future CapEx plan, which may take 3 to 4 years. These are the plan of action for CapEx. So I think that's all from side. But any other project like you have mentioned small-scale LNG, that is one of the sectors we want to invoke because that is our most backed project, which initially we have mooted in the market. Nobody thought of LNG as automotive fuel in India, but we have started this concept by having 4 buses, 2 in Dahej and 2 in Kochi, having 2 LNG stations at both the terminals in Dahej and Kochi. And we are using these buses for commuting employees from residence to plant. So we have started that concept. And now people are taking up.So we hope that we will also spend some CapEx on this plant, as I have already said that 50 LNG stations in the first year -- first phase we want, which may take 2 to 3 years, then again 300 stations by 2025. Maybe 4, 5 years it may take. And so on it will continue. So we have a plan for spending more of expenditure on smaller-scale LNG. Because if you look at this sector, this sector has a potential of around 8 to 9 MMTPA. If this is fully invoked over a period of next 10 years, it has a potential of consuming 8 to 9 MMTPA of LNG. But only thing, this will cannibalize diesel. And truly, it is good also for the country because diesel, in any case, is highly polluting fuel, and if it is replaced by LNG, certainly, it will improve the environment of the country. And also, the greenhouse gas emission, for which India has to meet the target of COP 21, that can be met through this kind of initiative. And if you look at the efficiencies of LNG trucks, there's saving of 25% almost from -- as compared to diesel prices. And also, if there is a fill of a truck with LNG, it runs almost 700 to 900 kilometers in one go.So these are the benefits, I think, when the people will realize that, of course, this segment will augment like anything. And we are very hopeful and very optimistic about it, and whatever CapEx we will be required to spend from time to time, we will do it. We have already started on pilot basis on Delhi-Mumbai highway, for which tendering is going on for LNG station. We are putting up 5 stations with Gujarat Gas. So this will be put up with them, and our area will be only putting up LNG dispensing stations. Land will be that of Gujarat Gas and other things. Civil works may be done by us also. So like that, we have divided it, and we'll come back with that kind of solution. And certainly, whatever return we get, we'll think that return is not important, important is to invoke business verticals, which everybody will be benefited. And we will also be benefited in turn that more and more usage of LNG will be there. So that is the whole idea of CapEx.
Got it, sir. This is very helpful. Sir, just one last thing. You mentioned in the -- I think in the remarks that about INR 160-odd crores was the CapEx for small scale LNG, and you were mentioning about 50 outlets, so is it fair to assume that INR 3 crores, INR 3.5 crores will be a per-outlet kind of CapEx?
Actually, there are several components which are there. So right now, whatever we are doing, basically, is spending only on the equipment, machinery, like that thing. But if you look at the cost of land also and other civil works, will be added to that. But INR 2 crore to INR 3 crore is on the higher side. But of course, maybe INR 1 crore to INR 2 crore it may be. But exact cost will be known afterward only. But we are still -- since we are doing with somebody else, so certain costs are met by them also. So it is in partnership. So entire cost will not be ours. It will be shared to some extent. But equipment will be installed by us.
The next question is from the line of Umang Shah from Asian Market Securities.
Sir, if I look at the long-term financials of the company, I see that the margins have seen a structural uptrend starting from FY '17. Could you recap the reasons of this margin increase post 2017?
Debabrata?
Could you repeat your question again?
Sure, sir. So if I look at the long-term fundamentals or financial of Petronet LNG, I see that margins have seen a significant structural uptrend only after FY '17, moving to almost 9% and above. Could you recap some of the reasons on how this margin has moved? Also, a lot of margin improvement comes from the other, like, not from sale, but from regas services. So how do you bifurcate the sale of LNG and regas of LNG versus booking [indiscernible]?
See, regas margins are always increasing at the rate of 5% every year. So that is one of the reasons which is increasing our margin from year to year. And the other part is that trading margins, certainly, if there are spot cargoes which we are selling during this financial year and after '17, like we are also selling to this OPaL, ONGC petrochemical plant. So some cargoes in the year we are buying for them, and certainly we are earning some kind of marketing margin also from that. So whatever spot cargoes like that or some short-term cargoes we are buying, so that's why there is a surge in the trading margin also somewhat. And certainly, this regas charges are always increasing at the rate of 5% every year. So that is one of the major reasons.
Yes. Okay, sir. And second question was, sir, if you were to break up your volumes into those volumes where you carry a pricing risk on your own book and those volumes where it's completely protected by your offtakers, like whatever you buy, the entire prices pass off to the offtakers, so the offtakers are taking the pricing risk. If you break those volumes in that way, it will be very helpful.
Yes. I will just give you. Because what I'm just going to say, at whatever volumes we are procuring on long term, that are all back-to-back passed on to the offtakes. So there is no risk of that volume. If you look at our Qatargas contract, which is around 7.5 MMTPA, this is back-to-back booked by the offtakers. And then 1 MMTPA of Qatargas addition was assigned last year to offtakers. And another contract we have Gorgon, this ExxonMobil contract. So that is 1.41 MMTPA is there. So that is also back-to-back book by the offtakers. So long-term volumes are entirely booked by offtakers. There is no issue. Now the rest of the capacity, which is available, is also booked except in the Dahej 2.5 MMTPA, which has been commissioned last year.And of course, Kochi is also stressed because of less consumption in that area and pipeline constrained. We are not able to increase our throughput there. But after this Kochi-Bangalore pipeline, certainly, the capacity utilization will be 30% to 35%. And once this Kochi-Bangalore pipeline is also connected, which GAIL has assured that by November, they will be going for awarding of that contract for Kochi-Bangalore, then that particular pipeline will further enhance our capacity utilization in Kochi. So volume-wise, we don't see any issue because whatever volume we are buying on long term is back-to-back booked. And customer is OPaL, which is asking us to buy some spot of whatever short-term cargoes. We are buying, but that is also back-to-back booked by them. So this is based on the requirement of the customer. So there is no risk of volume with us.
Right, sir. So would it be right to say that almost -- most of your volumes are back-to-back -- protected by back-to-back participant?
Most of the almost 100% except, you can say, 1 or 2 cargoes you might be taking is required. But otherwise, there is no -- I don't see any cargo which is not booked. Because whenever we procure, we have somebody in mind who we have to sell it.
Requesting the operator to take 1 more question from 1 more participant, please. And to answer the question of Sabri regarding the CapEx, the CapEx was around INR 100 crores in 2019- '20. That was the figure, basically. So one more participant, please.
The next question is from the line of Vinod Bansal from Franklin Templeton.
I have a couple of questions, if I may ask. One on dividend. Are you looking to formalize the policy for a higher payout? Will you be paying much higher than the policy states? So is there a thought on that?
Policy is there already. We have mentioned in our annual report also. This is basically 30% of PAT or 5% of net worth, whichever is higher, is the minimum dividend we are paying out. And maximum, there is no limit. But actually here, you see we have paid 125%. So last year, it was only 100%. So whatever is there because we have some tight CapEx plan. As I have earlier mentioned, we have 2 tanks coming up, which is costing around INR 1,400 crores, and then INR 1,200 crores, INR 1,300 crores required for a jetty in Dahej. So we may be requiring in future those funds. So that's why we are paying. But to the extent we are trying that we have to keep for our future projects also, like one in Gopalpur we may take up the East Coast terminal and other projects which might come in from outside India. So those things we are thinking of. So whatever we are paying is whatever maximum possible we are doing.
Okay. Also on the Tellurian deal, you mentioned that you're still discussing with them, is that correct? Because I thought the MoU had expired sometime in May.
Yes, Tellurian, this MoU was nonbinding. And as I said, I will not comment. But of course, there is no update on that. Whatever is there is there. So whenever Board decides on that matter, then it will be disclosed to all of you. It is too early comment on anything.
No, I get the point. I'm not seeking any details of discussion. I'm only asking that the MoU had expired. So have you renewed the MoU?
Yes, it may be extended also. There is no -- yes, we can extend it because there is no harm in extending it. It's a nonbinding nature.
As long as it was valid. So my simple question is a factual question, it is not about the discussions you're having with them right now. The MoU had expired...
But I'm not -- whatever Board will decide, we'll do. But both options are open. So I cannot comment on that what will happen. But you are very right that it has expired on May 31.
By when do you think the Board will be able to take a final view on this? I ask this because it's very clear to anyone that the deal is not favorable to a buyer now given the LNG space globally.
See, this all will be known to you very shortly. Don't worry about that. It will -- within this year, it will be done. I will not disclose anything apart from that.
I now hand the conference over to Mr. Vidyadhar Ginde. Over to you, sir.
I had a couple of questions myself. One was on this Kochi terminal regas. By when do you expect clarity on this to come in? And is it now very likely that in Kochi, at least, we will not have this 5% rise in regas every year? Is that certainly at risk?
No, no, no. This is not there because whatever contractual obligations are there, which are there, that 5% hike will be every year. So that will apply. There is no doubt about that. But only thing, as you are saying, when this will be decided, as I have already said, there is a committee which is set up by Board, Independent Directors Committee, which is looking into the matter. And there will be some amicable settlement or sort of agreement with the offtakers. But right now, we have already reduced it to the level of INR 79.14. I think this is good enough.
Okay. And sir, my second and last question. On this small-scale LNG, the marketing margin, which you spoke of, is it likely to be similar to the regas share or higher or lower? If you could give us some color on that.
Marketing -- Vivek, can you explain what is the marketing margin in LNG?
Sir, they are asking about small-scale LNG. So Vidhya, at this point of time, it's very difficult to give. So of course, our pricing, we plan to be competitive to diesel, which is the fuel which we'll be replacing. So keeping that in mind, we will decide. It's not a fixed margin. So we may actually kind of price our product at a discount to diesel prices. So from that perspective, the margin will be...
There is no fixed formula [ for it ] given the taxes on diesel, that [ part will be ] difficult.
So at this point of time, it's not possible to give you what the...
It's not decided so far how much we will charge. So certainly, margin will be there. Likewise, whatever we will do, $0.15, $0.10, anything could be there. But we have not decided.
So -- but if we will, let's say -- if you go to your targets longer term in terms of volumes, do you expect this to be a substantial contribution to the revenue?
Yes, once the volume picks up, of course, it would be.
As I said, there is a potential of 8 to 9 MMTPA in the future, so certainly, margin will be there, but our intention is not to earn so much of higher margin, it should be reasonable so that customer also feels that whatever -- they also feel that business is good. So I think the purpose is to enhance the usage of LNG. Margin may be lower or reasonable, but, of course, if this sector is invoked, then certainly the beneficiary will be both customer as well as Petronet LNG.
Thank you very much for the call. If you have any closing comments and then we can...
Yes. Actually, I'm very thankful to all of you because you are the people who are always increasing the brand value of Petronet LNG. And with your support, we are able to increase our throughput from year to year. And this year, as you must be -- you must have heard that we have already processed the highest ever quantity in Dahej terminal. And one good news I have said that Kochi-Mangalore pipeline will be there in this year by July end. So these are all very good thing for us. And most importantly, if you look at the kind of performance we have done even during this over COVID-19 lockdown period, it is really marvelous. If you look at our terminal, we have continued working in the terminal throughout the period of lockdown. And we had set up teams -- different teams, and one team was there in the plant for almost 40 days throughout and then 1 team was in quarantine in hotels and 1 team in home. So likewise, we made 3 teams in both the places, Kochi and Dahej, and we continued the operations. So our operations never halted during this lockdown period also.Although the throughput was less, but throughput was less not because of us, but because of the tepid demand in the market, people have started taking less gas because of obvious reason that there was no usage of gas in transport sector in that period. So that is -- CPT has been impacted in that period. Refineries have been impacted because the people -- they are not moving through cars and other mode of transport. So there was less consumption of diesel and petrol, so refineries also just started using less gas. Similarly, fertilizers sector also. So overall impact was there, while still we continued our operation in that difficult period up to 55% to 60%. So that is both praiseworthy for us -- for our employees and our stakeholders. And now after this unlocking has started, we are continuing our operations in full swing. It is almost more than 100% right now.So we are hopeful this will continue throughout the year, and your company will continue to grow like this. And we are hopeful that in future, our business -- LNG coming up -- LNG -- this is small-scale LNG, then certainly, margins for PLL will also enhance. And this is good news for the analysts and investors. And we have growth plan. As I have said, we are trying to increase the capacity in Dahej by adding 2 tanks and 1 jetty. And then we are also having a plan of LNG terminal in -- a regas terminal in East Coast. So these all are very good ventures which we are going to enter into.So with this, I think with all your good wishes, we'll be performing well in the future also. Thank you very much.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.