PETRONET — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
“Petronet LNG Limited
PETRONET LNG LIMITED · MODERATOR:
MR. RAKESH CHAWLA – GGM AND PRESIDENT, F&A
– PETRONET LNG LIMITED · MR. GYANENDRA KUMAR SHARMA – CGM AND VICE
MR. GYANENDRA KUMAR SHARMA – CGM AND VICE PRESIDENT, MARKETING – PETRONET LNG LIMITED MR. VIVEK MITTAL – CGM AND VICE PRESIDENT, MARKETING – PETRONET LNG LIMITED MR. DEBABRATA SATPATHY – GENERAL MANAGER, F&A – PETRONET LNG LIMITED MR. ASHWANI AGARWAL – MANAGER, F&A –
Moderator · Conference Operator
MR. PROBAL SEN – ICICI SECURITIES PETRONET
LINI«;;; · LIMIT£D
LIMIT£D
lltctCISecurilies · Annexure-1
Annexure-1
PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
January 20, 2023 So this is the PBT and PAT result.
Apart from that, as I mentioned, the company has reported highest ever turnover of INR 46,025 crores in the current nine months as against INR 32,008 crores in the corresponding period of the previous year.
So, there is a growth of around 44%.
But this is largely due to the price which has been higher in this period as compared to the corresponding period.
And if you look at PAT and PBT of this particular period of nine months, PBT has been INR 3,517 crores, as against PBT of INR 3,489 crores in the corresponding period of the previous year.
PAT has been INR 2,626 crores, as against a PAT of INR 2,602 crores in the corresponding period of the previous year.
So if you look at -- this is the result and if you see, there has been impact of Ind AS to the extent of INR 60 crores in Q3’22-23 due to foreign exchange volatility.
And as per the provision of Ind AS, we have recognized that -- because you know that exchange rate of dollar versus rupee has gone upside.
And therefore, there is a loss to us also because we're reporting in dollar terms.
So we have to convert and we have recognized loss of INR 60 crores in this quarter.
So this is all, and perhaps these robust results havebeen due to optimization in our operations and hope we will continue to do it even in this period, which has been very difficult for us, but somehow we were able to manage it.
And still, we have reported higher ever PAT and PBT in the current quarter.
If you look at the total throughput, long-term contract and for short-term ,service, you'll find that in Q3, long-term contracts, which we have processed in Dahej is 104 TBTU and Kochi has been 13 TBTU, total 117.
Short term, we have processed 3 TBTU in Dahej and then service part, we have processed 47 TBTU in Dahej.
So total makes it to 167 TBTU in this quarter as compared to 192 TBTU the previous quarter and 208 TBTU in the corresponding quarter.
So these are the results.
Now you may ask the questions.
January 20, 2023
Moderator · Conference Operator
The next question is from the line of Sabri Hazarika from Emkay Global. `Sabri Hazarika: So I have 2 questions.
One is basically the India AS bookkeeping question from Debabrata
Vinod Mishra
Yes, Debabrata is here
Sabri Hazarika
So I have two questions.
One is basically the Ind AS bookkeeping question from Debabrata.
So what was the run rate for the quarter in terms of cost of goods sold, other expense, depreciation, interest and other income?
Debabrata Satpathy
Yes, Sabri.
INR 161 crores at the gross margin level positive.
Then INR 60 crores forex loss.
Sabri Hazarika
Forex loss of INR 60 crores, okay…
Debabrata Satpathy
And INR 8 crores at the expenses level positive.
And the depreciation is INR 84 crores and interest is INR 79 crores.
Sabri Hazarika
So INR 54 crores negative is the amount.
Debabrata Satpathy
Yes, INR 54 crores negative.
Sabri Hazarika
So just a follow-up on this.
So are we entering a level where I think this whole lease accounting is reversing now or...
Debabrata Satpathy
As we had explained to you, the lease accounting will start reversing from FY 25.
Sabri Hazarika
From FY 25.
Sorry.
Debabrata Satpathy
For FY 24, it will come to a level of breakeven.
Sabri Hazarika
And 5.44 was the Gorgon volumes, right, in Dahej?
Debabrata Satpathy
That's right.
Sabri Hazarika
And second question is on the current scenario, I don't know whether you'll be able to share it or not.
So, what is the current utilization level right now?
So, we have seen the prices come down, but…
Debabrata Satpathy
Yes, utilization level is 81% as of now.
It has increased as compared to this current quarter we have just mentioned, 68%.
So now level has picked up.
As you rightly said, I have said that prices are down and even long-term prices are also very less nowadays.
It is between $11-$12 and even the spot prices have come down.
Two days back it was $16 something.
So, I think if prices are at this range, volume will definitely come up.
The utilization level is 81% as of now.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Moderator · Conference Operator
Thank you.
The next question is from the line of Pinakin Parekh from JPMorgan.
Pinakin Parekh
Sir, my first question is you mentioned that utilization levels have gone up.
So is it fair to say at this point of time, fourth quarter we can see volumes between 190 TBTU to 200 TBTU?
Moderator · Conference Operator
The next question is from the line of Mayank from Morgan Stanley.
Mayank
Sir, two questions from my side.
First was in terms of tthe receivables, is there something that you will consider if you can't recover the entire amount by March in terms of the dividend?
How will it impact your dividend payout?
And the second question was related to long-term LNG sourcing.
We have seen some peers in China and Thailand starting to kind of look at long-term gas supplies beyond 2026.
What is the thinking process at your end?
Sir, I'll repeat the questions.
The first one was, sir, related to the dividends.
This was regarding the receivables, the entire amount, you are not able to recover, especially for fiscal '23.
How are you thinking about that impacting your dividend payout?
Vinod Mishra
There is no link here.
Two things are entirely different.
Because for making payment of dividend, you need cash, and cash surplus we have.
So it will not impact the dividend, just be assured.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023 This is something else because we are fighting for it and we will try to get it also.
But at the same time, there is no cash shortage.
So I don't think there is any impact on the dividend part.
Moderator · Conference Operator
The next question is from the line of Vikash Jain from CLSA.
Vikash Jain
Just one question on this use or pay income that we have booked.
Now when I look at the third- party volumes that have been booked for this calendar year versus last calendar year, roughly, there's about 100 TBTU difference, 90 to 100 or whatever, around that benchmark.
But if we were to look at what you had booked in 3Q and 4Q of last year, assuming that all of that was for calendar year 2021.
Then from that perspective, should we expect you to book more in the first quarter as clearly, this number is similar to what you had booked during the last year, including the two quarters.
So this number should be higher, right?
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Vinod Mishra
No. Actually, this year, we have booked for the entire year, for calendar year 2022.
Last year, what happened that in 2021, we had booked INR 347 crores around of use or pay in the third quarter and INR 83 crores in the fourth quarter.
So this was the segregation.
So both of them were for the calendar year 2021.
So both of these will make it around INR 430 crores of use or pay.
So I think this is the right number if you compare from number to number because this year, it has been INR 849 crores.
Last year, it has been INR 430 crores.
Vikash Jain
So Mishraji that's what I'm comparing.
So I mean from so INR 430 crores versus this year being sorry, 849.
Okay.
Sorry.
Okay, understood.
Moderator · Conference Operator
The next question is from the line of Avinash Karumanchi from Equirus.
Maulik Patel
This is Maulik Patel.
Sir, a couple of questions.
One, have you taken the price hike at Dahej for this calendar year, 5% per annum?
Vinod Mishra
5% per annum.
Maulik Patel
Yes, that has been taken, right?
Vinod Mishra
Yes, yes, it is taken as per contract.
Maulik Patel
Okay.
So the revised price is about INR 59?
Vinod Mishra
It's around INR 59.
Earlier, it was earlier 57-point something.
Maulik Patel
And sir, regarding the take-or-pay as you have clarified a lot, but what are the options we as the company have?
And in case this continues for another year and the price of the global LNG market remain high, there can be another take-or-pay liability.
How are we going to address this and what has the Board discussed about this matter?
What are the options available to us apart from pursuing the pending dues which you're probably doing ?
And are you going to charge interest rate on the pending lease of CY '21?
Because it's more than a year and we have not received the amount from the customers.
This is Maulik Patel.
You were telling me about the tariffs.
Vinod Mishra
We were telling about Dahej regas charges.
So it is now INR 59.91.
Maulik Patel
INR 59.91, right?
And what will be the charges at the Kochi, sir, it was around 80?
Vinod Mishra
It is around 81.04 is there.
And it will be revised for FY 23-24 next time.
But it is now INR 81.04.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Maulik Patel
Sir, my second question is that on the take-or pay, if this amount doesn't get recovered, are you going to charge interest rate on the CY ‘21?
That’s number one, pending amount of around INR 3.2 billion?
And secondly, sorry, INR 4.2 billion.
And second is that what are the options available with the board to get the required amount.
Are there any bank guarantees, which have been with us as a part of the contract or apart from pursuing the negotiation or any legal measures which we can deploy?
Vinod Mishra
So, if you look at the composition, the company’s composition, it is that our promoters are our off takers also.
But they are not regular defaulters.
This is an unprecedented situation, which is causing this kind of problem.
But certainly, we still are following up for making the payment because ultimately, this is the contract that they have to pay, if they are not able to use.
And perhaps issue is that if you ask for security, we certainly from, as a promoter, we don't have it right now.
But there has never been a need also for that.
It has been a contract for the last almost 18, 19 years, and we have not seen any default.
It is the first time ever this situation has come that they are not making payments.
And perhaps we hope that this will be very shortly settled because we are following up.
And we have taken a challenge that in this quarter, we will try to resolve it.
Maulik Patel
Sure, sir.
Sir, this INR 1,300 crores of amount, is it pending from your promoters which is like GAIL and IOC and BPCL?
Or is this largely from those other customers, which are not your promoters, which is like GSPC and Torrent?
Vinod Mishra
It is all.
It is all.
Except GAIL, all are there in this 849.
So GAIL has not defaulted at all.
Otherwise, IOCL, BPCL, GSPC, Torrent etc all are there
Maulik Patel
You mentioned about the capex for the Petchem is around INR 13,000 crores?
That was the indication amount?
Vinod Mishra
INR 13,000 crores.
Maulik Patel
INR 13,000 crores.
And that is likely to get approved by this -- the next quarter?
Vinod Mishra
Not next quarter, I cannot comment because still we are in the process of licenser selection.
Maybe within six months, we can say.
Maulik Patel
And what kind of a time duration once you get an approval from the Board because you already have a land , right, in your possession.
What kind of a time scale we are looking for to set up this project?
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Vinod Mishra
It's still almost four years, it will take almost, for approval and awarding the job for the project.
So it will be in a staggered manner. capex will not be in a day.
This is for the span of almost four years.
Moderator · Conference Operator
The next question is from the line of Siddharth Chauhan from B&K Securities.
Siddharth Chauhan
My question has been answered.
Moderator · Conference Operator
The next question is from the line of S Ramesh from Nirmal Bang Securities.
S. Ramesh
Good evening and thank you very much.
So, if we have to understand the use-or-pay provision of INR 848 crores, that is entirely for April '22, March '23.
So out of that, how much should we assume for the third quarter if we have to adjust those numbers?
Vinod Mishra
Actually, this use-or-pay charges is valid once in a year.
We don't account for it in every quarter because we give an opportunity to all the off takers and all the customers that they should utilize within this calendar year.
So it's basically calendar.
As you said from 1st January 2022 to 31st December 2022.
So if they are able to use their quantities booked in this period, then we don't levy anything.
But after this date passes, means after 31st December, we levy the use-or-pay charges.
S. Ramesh
So in terms of the coming financial year, at what capacity utilization should we expect the company to be looking for?
Vinod Mishra
We are very bullish about it, and we are expecting more than 80% and we are going on at 81%.
So now volume is coming.
So we are hopeful that at least it will be in the range of 80% to 90%.
S. Ramesh
So the question I'm trying to drop in with is, in future if the capacity utilization decline, how do we account for this in terms of making the estimates because if you go by 60%, 70%, the earnings come lower than what you report.
So at what level capacity utilization should we expect the use- or-pay charges to be booked on a calendar year basis?
Vinod Mishra
See, we don't expect any use-or-pay charges.
In fact, we don't want it should happen at all.
They should come and book their capacity and use the capacity.
And this is the intent of all the customers.
They don't want to get this bill unnecessarily again for use-or-pay charges.
But this is compulsion because of the high prices of LNG.
It has been there.
But now prices are also coming down.
If you see it has been in the range of $20, but yesterday I don't think it was more than $17, before that it was $16.
So, if the prices are in that range, then perhaps you will find more cargos coming here and customers would use it.
But at this level, when it is $30, $35, $40, the consumption is very less, because of the high prices.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023 And certainly, we are now very hopeful that if this kind of pricing of $16 to $20 persists, we can expect more volumes at least in the third quarter -- fourth quarter and the capacity utilization will be much, much higher.
S. Ramesh
And then what is the status of the two-phase expansion in Dahej.
When do you see the complete closure of the projects and volumes contributing to your utilization, say in Dahej once the expansion is over?
Vinod Mishra
You are talking about Dahej expansion of five MMTPA?
So we expect that by the end of 2024, we should be able to get at least 2.5 MMTPA and by March '25, we should be able to get at least next 2.5 MMTPA.
So by March, you can say March 2025, we should be able to get this capacity.
And we are hopeful that, that capacity again will give us flexibility so that we can book more capacity with the customers.
And perhaps, we can also think of more volumes coming in for our own purpose also because you see we are, in fact, importing some cargoes on behalf of ONGC also.
So, if we get some volume contracts, then we shall have that advantage and we can process it, we can store it in the two tanks that we are constructing.
So there are lot of business opportunities which are there because then we can also have some trading volumes with us in future, if at all, there is an opportunity.
So that kind of flexibility will be there.
And apart from that, we are also looking forward to having some capacity booking for the expansion we are going for Dahej.
We are very optimistic about this.
Moderator · Conference Operator
The next question is from the line of Somaiah V from Spark Institutional Equities.
Somaiah V
So, the first question in terms of the take or pay, the revenues that you have booked, what would be the equivalent volumes in both the years for calendar year '21.
If you can give a number in TBTU for calendar year, 21 and 22?
Vinod Mishra
You are talking about 21-22?
Somaiah Valliyappan
For both the years.
Sir, calendar year FY 21and FY 22.
Vinod Mishra
For 2021 it was 80 TBTU.
And for 2022, it is 155 TBTU.
Somaiah Valliyappan
And second question is with respect to the Petchem project.
So what would be the IRR broadly that you'll be looking in for this project?
And when do we expect capex to start for this project?
And also, you mentioned that it will happen over a period of time.
So any color on that, that will be helpful?
Vinod Mishra
So IRR, as you know that we have a policy here that whatever project we undertake, there is a project approval authority, which ensures that unless we get an equity IRR of 15%, we don't go for the project.
So in this case, we are getting a handsome IRR, and we cannot mention right PETRONET ._ ... «;;; L I M I T£D
PETRONET LNG LIMITED · MODERATOR:
January 20, 2023 now.
These are premature things.
But it is above 16% equity IRR, so that is for sure.
And as far as the capex plan is concerned, it will be in a staggered manner in the next four years after approval and awarding of the job.
So hopefully, we can say that INR 13,000 crores will be spent not equally than certainly initially, it may be less INR 2,000 crores and then INR 3,000 crores, INR 4,000 crores like that and INR 5,000 crores.
So it will be like that only.
For year 23 and 24, it may be less.
But in subsequent years, it may be high because we are expecting it by '26 end.
So it will be in a staggered manner, INR 2,000 crores to INR 4,000 crores each year.
Somaiah Valliyappan
One last question.
Sir, what will be the capex profile for the next -- I mean, for this year, what would be your capex amount?
And then what are we looking at next year at a company level?
And when is the Gopalpur project expected to be complete?
Vinod Mishra
This actually -- next year, you are talking about FY 23-24 or this year, you are talking FY 22- 23.
It will be in the range of INR 1,200 crores- INR 1,250 crores approximately.
Somaiah Valliyappan
So you're referring to FY '23?
Vinod Mishra
Next year, it may be even higher than that, maybe we are likely to spend around INR 1,800 crores .
But this year, INR 1,200 crores you can say, exactly.
Somaiah Valliyappan
And the last part of the question, I mean, the Gopalpur terminal, when is it expected to complete?
Vinod Mishra
When it will be?
Somaiah Valliyappan
When is it expected to start?
Vinod Mishra
Yes, I just told you that we are still doing some due diligence regarding this agreement signing and all those things are being followed up.
And certainly, we will enter the agreement with the Gopalpur Port Trust so that we get the right to build the terminal over there.
We have, in fact, contacted the state government authorities and we are seeking environment clearance and some other clearances from the authorities.
And thereafter, we will, in fact, go for the awarding of jobs.
So if you look at present, we are planning to have FSRU terminal.
So it should not take too much time, approximately 2 years' time for the FSRU terminal after awarding the job.
So firstly, we're trying to get the clearances so that the agreement is signed and everything is placed well, before awarding the work to the contractor for construction of the LNG terminal.
So it will be least, 2 years..
The time frame for construction of the FSRU terminal, Gopalpur should not be more than 2 years.
But this is after award of the job.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Moderator · Conference Operator
The next question is from the line of Puneet from HSBC.
Puneet
My questions have been answered.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, this was the last question for today.
I would now like to hand the conference over to Mr. Probal Sen for closing comments.
Probal Sen
Would you like to give closing remarks Sir?
Moderator · Conference Operator
Thank you.
On behalf of ICICI Securities, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.
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Questions and answers
Moderator · Conference Operator
The first question is from the line of Puneet from HSBC.
Puneet
My first question is with respect to the income that you've recorded this year for use and pay charges of almost INR 849 crores.
And there was a similar number, INR 415 crores or rather half of it last year.
What is the progress in terms of negotiation?
Have they recognized or have they even acknowledged these outstanding deals so far or not?
Vinod Mishra
It has been our claim as per the contracts.
And continuously, we are following up with the customers that they should pay it because this is payable as per the contracts.
But as you know that so far, we have not received it, this is true.
But still, we are focusing on getting the payments as early as possible.
But if you look at the kind of situation which is prevailing, what's happening that volume itself is not coming too much to India.
And that's why there's an issue and we have to book use or pay charge of INR 849 crores this year also.
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023 So situation is difficult, but still we are making all efforts to recover this and perhaps we are still negotiating.
We're continuously talking to them and whenever there is a progress, we will certainly report to you that how much we have recovered.
Follow-up is continuous, and it has been, in fact, followed at a very senior level and let us hope that positive results should come out.
Puneet
And is it fair to assume that there is no issue with respect to the other long-term volumes?
That's so straightforward and you're getting paid for that?
Vinod Mishra
Long-term volume, is coming as usual.
There is no issue as far as all the long-term contracts are concerned, Rasgas contract or the ExxonMobil are there.
They are all coming, and they are being paid in time, there is no issue.
The problem is the service volume, which basically is the capacity booked where they had to bring some cargoes and get them regasified at our terminals.
So that part has not been supplied.
That is the only part which is lacking.
Puneet
Okay.
So in that context, can you give me the amount of receivables outstanding as of Q3 and net cash?
Vinod Mishra
You are asking how much is outstanding?
Puneet
Yes, total receivables end of Q3 and net cash end of Q3.
Vinod Mishra
Total receivable as on 31st December, Rs 3,513 Cr but this includes everything.
Puneet
It includes the 1,200 something number as well?
Vinod Mishra
Yes, yes, it includes Rs 1,200 Cr and apart from other long-term contracts, this is also there.
Puneet
And net cash?
Vinod Mishra
INR 6,900 crores is the cash available as of now.
Puneet
And if you can share the numbers for service income as well for the current quarter?
Vinod Mishra
Service volume?
Puneet
No, volume you shared, you also report the income from services.
What is recorded?
Vinod Mishra
INR 1,112 crores as against INR 438 crores in the previous quarter and INR 755 crores in the corresponding quarter.
Puneet
And last one is an update on your capex plan.
How is that going and where have you spent so far?
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PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Vinod Mishra
Capex plan, as I've mentioned, our two tanks are under construction.
Approximately 50% progress is there out of total tank cost of INR 1,246 crores.
And we are going for Jetty also.
So that will be a capex of INR 1,700 crores.
And we have already got the approval of both and we are now going for tendering process for awarding that job.
And apart from that, we still have one terminal on the East Coast, Gopalpur terminal.
So that part also is progressing.
And in fact, it has been approved by the Board also.
So now we are looking forward to having other agreements, implementation of agreements and other agreements with the Gopalpur Port Trust and perhaps if that is done; thereafter, we will go ahead with tendering process for that.
So, all feasibility, environment clearance, all those things are required.
That process is going up.
So that is also a capex of around INR 2,300 crores.
And apart from that, as you know that we already have a plan to have one PDH-PP plant in Dahej.
So that part is still going on, and that is a capex, huge capex, intensive capex item and involves around INR 13,000 crores-INR 14,000 crores investment.
But that is an initial stage, because we are now looking forward to go for licensing selection process.
And after selection of licenser, we will go ahead with this approval from the Board for the plant.
So, that is how we are progressing.
And other capex plan, if you look at LNG stations which are there, but, as we have mentioned, four stations will be commissioned very soon.
Currently they are under construction and more will come.
But again, issue is the high price of LNG.
So that is causing a worry, but now there is a silver lining that we are getting some price reduced.
And in the current last two days, I've seen the price has been ranging between $16 to $20 .
So if that remains the price throughout the year, then we can think of some momentum and augmentation in the process of installation of LNG stations and conversion of trucks to LNG fuel trucks.
So all those things are there.
Other things I have already mentioned, CBG part is also there, but that is, again, an issue because state government has to allot land to us, then we can think of it.
But that is not working well right now because we are not getting the land.
Once we get the land, then we can think of those plants also.
Moderator · Conference Operator
The next question is from the line of Nitin Tiwari from Yes Securities.
Nitin Tiwari
The first question is about the bookkeeping one.
How much of the Gorgon volume was at Dahej in this quarter?
Vinod Mishra
5.44 TBTU at Dahej and 13 TBTU at Kochi PETRONET ._ ... «;;; L I M I T£D
PETRONET LNG LIMITED · MODERATOR:
January 20, 2023
Nitin Tiwari
The second question is regarding the regas service volume that we have in this quarter.
So they are fairly low although like, there was a moderation in LNG prices which was seen progressively over the third quarter.
So why this sudden drop?
Is there any significant contractor who has backed out and related to that the use or pay that we have booked as of this quarter, does that also include non-usage of the regas service facility in this quarter and because the volumes are pretty low so, if you can just help me understand that?