GAIL India Ltd (GAIL) Q4 FY21 Earnings Concall Transcript

GAIL India Ltd (NSE:GAIL) Q4 FY21 earnings concall dated Jun. 10, 2021

Corporate Participants:

Manoj Jain — CMD, Director (Projects) & Director (HR)

Anjani Kumar Tiwari — Director Finance

E.S. Ranganathan — Director, Marketing

Analysts:

Amit Rustagi — UBS — Analyst

Harsh Dole — IIFL — Analyst

Probal Sen — Centrum Broking — Analyst

Rakesh Sethia — HSBC — Analyst

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Nafeesa Gupta — Bank of America — Analyst

Mayank Maheshwari — Morgan Stanley — Analyst

S. Ramesh — Nirmal Bang — Analyst

Jaswinth K — — Analyst

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

Vishnu Kumar — Spark Capital — Analyst

Venkatesh Subramaniam — — Analyst

Manish Jain — GormalOne — Analyst

Pinakin Parekh — JPMorgan — Analyst

Harsh Dole — IIFL — Analyst

Presentation:

Ladies and gentlemen, I welcome you all on behalf of IIFL for GAIL India’s Investors and Analysts meet to discuss the company’s performance for the year gone by and share the performance outlook. Today we have the entire functional board of GAIL, represented by Sri Manoj Jain, CMD; Shri A. K. Tiwari, Director Finance; Shri E. S. Ranganathan, Director Marketing; Shri M. V. Iyer Director, Business Development.

The flow of events for today is as follows; first I would request Shri Manoj Jain, CMD GAIL, to give an opening remark. Subsequent to which, there will be a brief presentation by Shri A. K. Tiwari, Director Finance, sharing the financial highlights. And then the floor will be open for Q&A thereafter.

Without much of a delay, I hand the floor to Shri Manoj Jain, CMD GAIL. Over to you, sir.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you, Mr. Harsh. My dear friends from investors and analyst community, Mr. Harsh Dole from IIFL and my colleague directors. A very good afternoon to all of you. I hope that you and your families are keeping safe from the impact of second wave of COVID. As you all know, yesterday, we have declared financial results for the financial year 2021, and the standalone turnover PBT and PAT stood at INR56,529 crores, INR6,386 crores and INR4,890 crores respectively. Details on the financials will be shared by Shri Tiwari sir, our Director Finance, and I would like to just briefly touch on the main activities which GAIL has undertaken in the last financial year, and how we have contributed towards the society in these pandemic times.

GAIL runs its various flagship programs under CSR, like GAIL UJJAWAL, which is education centric; GAIL KAUSHAL, which is a skill initiative; GAIL AROGYA, which is health and sanitization. The total spending of GAIL on the CSR projects in 2021 was INR145 crores. In its battle against the COVID 19 pandemic, GAIL took various initiatives, including contribution of INR50 crores to PMCARES Fund by the company and INR3.5 crores by GAIL’s employees. Further projects worth INR30 crores undertaken towards alleviation of COVID-19, by providing medical equipment to hospitals, setting up of 12 PSA oxygen plants, oxygen cylinders, oxygen concentrators.

During these times, though it was tough to move in the field, but still the GAIL team took this challenge and during this year, we have two major inaugurations and completion of major sections of pipeline, one of which was the Kochi to Mangalore section of 450 kilometers, which was slightly inaugurated, considering the importance to the nation by Honorable Prime Minister, on 5th of January 2021. The second project was Dobhi to Durgapur pipeline section of 350 kilometers, which was also dedicated by the honorable Prime Minister, on 7th of February, 2021 in addition, we have also commissioned 175 kilometers of Vijaipur-Auraiya Pipeline during the last year, and we have also connected the tie-in connectivity for ONGC Madanam gas, which has been now supplying gas to the southern region in Tamil Nadu.

Total, around 1,000 kilometer worth — 1,000 kilometer length of project — pipeline projects were commissioned during the 2021 year. As of now, currently, we are executing total 71 projects, big and small at an estimated cost of INR47,500 crores. During the past year, we have lowered the pipeline, which is a significant parameter knowing the progress of around 937 kilometers of gas pipeline. We are also focusing development of national gas grid, with around eight pipeline projects of total length of around 7,500 kilometers, and a cost of around INR36,400 crores, which are under execution.

Similarly, we are also working on two projects and they are under progress, worth INR10,000 crores, one of which is expansion in the PATA for 60,000 tonnes polypropylene plant and another is a new plant of 500,000 tonnes per annum PDH-PP petrochemical plant at Usar.

On the CGD, GAIL Group of companies have made domestic PNG connection of endpoint 10.10 lakhs which is highest ever done by our Group, and also it is almost 80% of the total national progress, which was done in the DPNG section. Similarly on the CNG station front, our group companies totally have made 341 new CNG stations, which is 33% of the total CNG stations made in India.

Apart from this, we are also in the current year, focusing on new business opportunities, wherein, under the aegis of MOPNG, GAIL’s management has given a thrust to expand into the area of compressed biogas, ethanol, 1-G refinery and renewable energy and GAIL is undertaking several initiatives to diversify in these areas.

Under the compressed biogas projects, we have already signed an agreement with the Ranchi Municipal Corporation and we will be laying a plant from municipal solid waste to natural gas, and the license agreement is for 22 years. Similarly, we are also looking at some other cities in this regard from municipal solid waste, to compressed natural gas.

We also started an expression of interest to seek partners of interest to seek partners for ethanol refinery, so that we can also be part of ethanol blending program of the Government of India, which is now — new lucrative area, which has been opened by government for all the players. Similarly, we are also looking at various organic and inorganic opportunities in the renewable energy business, for which also we intend this year to bid for many of the organic opportunities, and as you all know, we have already an MOU with BHEL, so along with BHEL’s partnership, we will be bidding for those opportunities.

With this, I’ll end here and I’ll request our Director Finance, to kindly share the details of the financial results, which we have declared yesterday. Thank you.

Anjani Kumar Tiwari — Director Finance

Thank you very much sir. Respected Chairman, Director Marketing, Director BD, OICs and HODs from various sites of GAIL, Mr. Harsh Dole from IIFL and my dear friends from investors and analyst community connected through WebEx. A very good afternoon and welcome to GAIL’s analysts and investors meet, to share the FY ’21 results. I would like to thank you all for taking out your precious time and showing keen interest in the result and performance outlook of GAIL.

Last year when we had our Analyst and Investors Meet virtually due to the outbreak of the COVID-19 pandemic, we were very hopeful that the things will normalize, and this year we will be able to meet you personally and have the Analyst Meet at Mumbai. In fact, things had started to improve, but then second wave of COVID came in. I hope that you and your families are keeping safe from the impact of second wave of the pandemic. GAIL has also taken a host of measures to support its employees and society to combat COVID-19.

The company is consistently working in tandem with the objective of Government of India, to our economic development and achieving Atmanirbhar Bharat Mission. We have declared the results of fourth quarter, the year 2021 yesterday. Before getting into the results, I would like to share with you some of the highlights and achievements for the year 2021.

GAIL in the month of March ’21 has successfully concluded its maiden buyback of 6.98 crore shares here at the rate of INR1.50 per share, amounting to rupees INR1,046 crores, corresponding to 2.5% of the net worth. GAIL has paid total interim dividend of INR2,238 crores at the rate of INR5 per share during FY 2021. GAIL has received nil comment from CAG for accounts 2019-20 and this is the 11th year in a row. GAIL has won second position under the category manufacturing public mega and GAIL Jamnagar Loni pipeline on first position, under category transportation and logistics in 17th National Award for Excellence in Cost Management 2019, organized by the Institute of Cost Accountants of India.

GAIL emerged as a winner in the Investor Relation awards [Phonetic] 2020 under the category of ESG Disclosure. This award is a testimony of the GAIL’s efforts in maintaining and improving its Investor Relation. We will continue with our endeavor to make our IR program one of the best in the industries.

GAIL has also received the prestigious Golden Peacock Award for Excellence in Corporate Governance for the year 2020. GAIL has applied for the settlement of Direct tax dispute of 21 years, under Vivad se Vishwas Scheme and the Department has accepted the GAIL’s application for all 21 years, and this has resulted in reduction in the contingent liability to the tune of INR2,000 crores.

I would like to inform you further that the GAIL has taken various measures to reduce its financing costs, which resulted in reducing the effective long-term borrowing cost at 5.2% in March ’21 from 7.94% in 2019. As our Chairman has already informed about the various…[Technical Issues]

Harsh Dole — IIFL — Analyst

Ladies and gentlemen, there seems to be some technical issue. Just bear with me for a minute.

Anjani Kumar Tiwari — Director Finance

…and the quarter ending 31st March, 2021.

The COVID impact of the physical performance was mainly seen in Q1 and from Q2 onwards, the physical operation of the company has started improving. However, due to loss of production and sales in the earlier part of the year, the physical performance of the company in FY ’21 is lower as compared to 2020 which is marginal.

To talk about the polymer production, it stood against the tide and despite the disruption in the production and supplies in the earlier part of Q1, GAIL not only surpassed last year’s level, but also exceeded 100% capacity utilization on a full year basis. This is an excellent performance by the petrochemical plant.

Gas marketing stood at 89.2 MMSCMD in FY ’21 and the GAIL natural gas transmission stood at 104.2 MMSCMD in FY ’21. The capacity utilization decreased to 51% in comparison to FY ’21, which was 53%. The polymer production stood at 813 TMT in FY ’21, and this is the highest ever production achieved by our petrochemical plant.

So this was the physical highlights. Now I will give you the financial highlights. GAIL achieved gross turnover of INR56,529 crores in the current year, as against INR71,000 crores in FY ’20. There is a decline of 21%, mainly due to the decline in the natural gas marketing and transmission volume, lower LSC quantity and lower prices of natural gas. PBT stood at INR6,386 crore in FY ’21 as against INR7,943 crores in FY ’20 which is a decrease of 20% and PAT was INR4,890 crores in FY ’21 as against INR6,621 crores in the previous year. These are mainly due to the lower gas marketing spread and various other factors taken together. Things have improved in the current scenario now and GAIL marketing segment has improved progressively in Q3 and Q4.

So far as the quarterly performance are concerned, GAIL clocked turnover of INR15,472 crores in Q4 in current year, as against INR15,386 crores in Q3 FY ’21, increase of approx 1%, but the PBT stood at INR2,612 crores in Q4 FY ’21, as against INR1,868 crores in Q3 FY ’21, increase of approx 40%. Mainly due to higher price realization in the petrochemical, LSC, which has contributed 10,000 per metric tonne.

GAIL registered PAT of INR1,908 crores in Q4 FY ’21 as against INR1,487 crores in Q3 FY ’21. So far as the consolidated financial results are concerned, the turnover is stood at INR57,208 crore, PBT at INR7,725 crores and PAT INR6,136 crores. During the year, GAIL sourced and handled 119 LNG cargoes, out of which 83 cargoes were sourced from U.S. and total 35 cargoes were sold in the international market, and remaining were brought to India. On CGD front, GAIL is supplying gas to all six CGDs, with infrastructure of 78 CNG stations, and having 1,30,000 approx PNG connections. Cumulative capex is spent on GAIL CGD, INR750 crores. So far as the GAIL Gas performance are concerned, the turnover stood at INR4,015 crores and PBT INR213 crores and PAT INR157 crores. GAIL, along with JVs and subsidiaries have added 87 new CNG stations and nearly 187,000 PNG connections.

Just to give overview of BCPL, our subsidiary at Assam, the plant has operated 106% of its capacity, and during the year, the revenue from operation was INR2,903 crores and the gross margin INR1,427 crores, net worth of the company is INR2,073 crore. So that BCPL plant at Assam is now stabilized. NTPC and GAIL, I would like to tell about the Konkan LNG, NTPC and GAIL has executed share swapping agreements, post share swapping agreement, GAIL’s equity shareholding in KLL has increased to 92.15%. And the KLL also has the cash profit of around INR120 crores. We have also awarded the job of breakwater and that is under execution.

So far as the capex is concerned, this year GAIL achieved capex of approx INR7,000 crores, mainly on pipeline equity contribution, operational capex and we have a plan of this year, ’21-’22 around INR7,000 crores. ’22, ’23 approx INR12,000 crores and next year to that is around INR9,000 crores.

As our Chairman has already highlighted about the project, I will just give overview of that. On the Pradhan Mantri Urja Ganga, the total commitment of that is around INR14,700 crores and the actual capex is INR11,300 crores. We have been receiving the capital grant from the government regularly, and till date, the total capital grant we have received is around INR4,487 crores. As a part of national grid, gas grid strategy the total — the GAIL along with JV has executed pipeline to the extent of 7,500 kilometers, having that total capex of around INR37,000 crores.

Just to give a brief of the pipeline, Srikakulam Angul Pipeline 744 kilometer, INR2,700 crores, completion by July ’22. Dhamra Haldia, 253 kilometers, investment of INR1,200 crores, completion by November 22. Mumbai Jharsuguda, 1,755 kilometers, INR7,800 crores completion by May ’23, and like that, we are also executing all the projects, which are on hand.

The work on this pipeline is progressing at a good pace. ROW allotment from Maharashtra State Road Development Corporation for 700 kilometer for Mumbai Jharsuguda, Mumbai Nagpur pipeline has also been received, and we are on the fast track. This pipeline will not only help to complete the national gas grid and bring the Northeast in the pipeline network of the country, but also help in achieving the Government of India’s target to increase the national gas share in the energy basket to 15%.

In addition, GAIL is executing PP project at Pata and Usar, total cost of which is around INR10,000 crores. So far as the safety are concerned, we have zero major reportable accident happen during the last four years, and we are also monitoring and keeping all our HSC performance and all our installations are working safely.

GAIL has taken various digital initiatives, like introduction of the digital worker for its robotic process automation, digitization of contactor invoicing processing, digitization of the employees’ payment, etc. So this has given a boost to the Digital Yatra.

So that was the brief introduction on the financial results and highlights of the company. GAIL Chairman and the management team is present here, and would be happy to clarify on any points that you may have. Over to you, sir.

Questions and Answers:

Harsh Dole — IIFL — Analyst

Sir, thank you for a very detailed presentation. I would open the floor for the Q&A. I would request the participants to raise hands. I will unmute the participants in the sequence, and they can prefer to turn on the camera if they wish to, and ask the question. First question is from Amit Rustagi. Amit, please go ahead.

Amit Rustagi — UBS — Analyst

Okay, thanks. Thanks Harsh. Sir, good afternoon to the management of GAIL. Sir, I have two questions, one is relating to your renewable energy push. So could you elaborate the capex plan on the 400-megawatt solar and biogas, so what is the capex outlay, which we are thinking over next one or two years and over the next four to five years. That’s my first question.

Anjani Kumar Tiwari — Director Finance

Yeah. Thank you. Regarding compressed biogas, the initial plant, which we have already ordered and the work has started. That will — it’s a small one and around INR30 crores is the capex outlay for that, and that will be the first sample for 5 tonnes per day. And we are expecting that in this year itself we will award another CBG plant, which will be at the capex of around INR50 crores to INR60 crores. And then based on the progress with the various municipal corporations, we can further do it, budget is not a constraint.

Similarly, we are also executing the CBG plants, where we are arranging the marketing agreement with manufacturer of the CBG, and these will be the private entrepreneurs, and our city gas companies will be buying that natural gas from those entrepreneurs. KLL will be implementing a synchronization scheme of this natural gas, which is produced from CBG, with the city gas which is being brought through the domestic gas. So we will be mixing and synchronizing both the gases, and supplying to the individual CGD companies. So that will not be any capex related work, but it will be a more fleet expansion of the gas-based economy.

On the renewable side, our targets are that we can — we would like to be a 1 gigawatt solar and wind both together on any other renewable part, in next three to four years. And towards that, we are doing both inorganic and organic efforts, and accordingly with one gigawatt of it, we have got and INR4,000 crores to INR5,000 crores of rupees which we can do — or the capex on that part. So that also is not a constraint. And as you know, our debt-to-equity ratio is very low. So arranging money is not a problem. If we get good projects, we can even exceed this target.

Amit Rustagi — UBS — Analyst

Okay. And sir, my second — thank you, sir. Sir, my second question relates to the pipeline capex, which we are doing is we have. So we have now big expansion plans in the pipeline segment. But could you guide us for the volume expansion also, because for the last or years, the volume — transmission volumes of the company are flat, and probably, if you look at the India landscape, we have lost market share to the other transmission companies in the country?

Anjani Kumar Tiwari — Director Finance

On the transmission front, I think the market share remains static. You are right, but we have not lost on the market share on transmission. As a whole, the country’s consumption has remained static, largely because of the COVID impact last year. And first quarter was almost a washout for city gas companies. So there used to be a very big demand, which we could not cater, because the vehicles did not run on — at least in the first quarter. So this year onwards, we are expecting reasonable growth, and we expect that CBG sector alone will give a 6% to 8% growth in the near future. And overall, in the pipeline segment, we are looking at a growth of 7% to 8%, at least for the next three years, and then there will be further jump on this growth and new fertilizer plants, as well as new refineries will be added, and the transmission segment, and then the national gas grid in the next four years or so will be completed, and the total network will be around 34,000, then definitely the numbers are bound to increase, even more than 6% to 8% growth.

Amit Rustagi — UBS — Analyst

So this means we should see 9 to 10 MMSCMD volume growth over next year from here. So we are at 108, 109 right now. So for next year, should we expect 119 to 120?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Last year was 104. So definitely hundred 114-115 we should definitely expect, and it could be, if there is no further disruption, then it could be better also. But in the month of April, we have seen in the — till mid of May, there was some 10% to 15% reduction, but now it has been made up, and we are back on track. If you look from today or yesterday, it is around 110 in GAIL’s pipelines, it is already going.

Amit Rustagi — UBS — Analyst

Okay, thank you sir, and best of luck. Thanks Harsh.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you.

Harsh Dole — IIFL — Analyst

So next is the Probal Sen. Probal, please go ahead.

Probal Sen — Centrum Broking — Analyst

Am I audible?

Harsh Dole — IIFL — Analyst

Yes please.

Probal Sen — Centrum Broking — Analyst

Just give me a second. Yeah, good afternoon, sir. Thank you for the opportunity. I had two questions, one was with respect to this quarter and basically the outlook in terms of petchem, what sort of realizations are we actually seeing? I mean, what’s the outlook that we see in terms of any further improvement in pricing? Is that a possibility, number one? And secondly, since we have already achieved a very strong utilization already in FY ’21, without the expansion projects that was just spoken about, is it possible to push utilization even further from current facilities, or we will have to wait for the new additions to come through, for any volume increase beyond the 813 odd that you already done in FY ’21? That’s my first question.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. As far as the petchem numbers are there, you rightly said, the capacities are almost to the full. Both BCPL is operating at 107%, and Pata is also operating at 103%. So without the new capacities, there will not be significant change in the capacities of both the plants. As far as the pricing part is concerned, we are seeing a substantially stable pricing regime now, which is in — as compared to previous year, it was better in the Q4 and in Q1 also, it is a little bit — slightly down, but still better than the last year’s numbers. But Q1 numbers will be slightly lower because we have taken shutdown in our Pata plant in the month of this — mid-April to kind of the May end so. So probably the numbers in this quarter will be lower, but then once the plants are coming back by 15 June, both the plants will be on full load. So then, our numbers are going to be similar to the previous year, and in total this 810 and 815 is feasible.

Probal Sen — Centrum Broking — Analyst

Okay. And the second question I had was with respect to the capex. You already gave a fair detail in terms of at least three of the pipelines that are on the anvil, which is Srikakulam Angul, Dhamra Haldia and Mumbai Jharsuguda. But if I add up the capex of the three that was mentioned, sir, that is around INR10,000 odd crores. So this INR37,000 crore capex that you mentioned, that is inclusive of the any pending capex on the Eastern grid, or any projects we are missing, sir?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah, there are major projects — new projects. You rightly said, these are the three new major projects, one is Mumbai Nagpur, another is Srikakulam Angul, and third is Dhamra Haldia. These are the three new, and entire capex is — their entire capex has been considered. For the Jagdishpur Haldia, this INR36,000 crore includes the capex which been done already. So that INR11,000 crores which we have done, it is included of that. Apart from this, we have got Kochi-Koottanad, this Tamil Nadu section is balanced. There another INR1,000 crore capex is there, and then we have got Sultanpur-Jhajjar-Hissar pipeline. Haridwar-Rishikesh-Dehradun pipeline. Then Vijaipur-Auraiya balance portion, we got a major pipeline. And then small connectivity pipelines are also there.

So total, including what already has been spent, these total projects together account for the INR37,000 crore.

Anjani Kumar Tiwari — Director Finance

In addition to that, around INR10,000 crores of the petrochemical plant, which are there, Usar and our Pata plant. So INR10,000 crores more will be there.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Total will be around INR47,000 crores.

Probal Sen — Centrum Broking — Analyst

Yeah, yeah, I got, I was asking for the INR36,000 crore only sir. So just on the petchem the INR10,000 crore, one last question if I may. What are the timelines for completion that we’re looking at, for both the projects, for…

Manoj Jain — CMD, Director (Projects) & Director (HR)

Looking the timelines in ’23-’24. So the — I think if I remember correctly, it is June ’23? September ’23 is the target date for completion of the project. Then another two, three months for commissioning by maybe end of ’23 or maybe January ’24 or so.

Probal Sen — Centrum Broking — Analyst

That’s for both the — that is for both Pata as well as the Usar plant?

Manoj Jain — CMD, Director (Projects) & Director (HR)

As on date, we have — all the licenses are in place and the basic design and engineering part is almost at the final stages of finishing, and some of the enabling contracts have been awarded. So there is a substantial progress, as the our DF also told. Next year’s capex largely consists of these two projects.

Probal Sen — Centrum Broking — Analyst

Got it. Thank you, sir. I’ll come back if I have more questions. Thanks for your time.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you.

Harsh Dole — IIFL — Analyst

So next we have a question from Rakesh Sethia. Rakesh, please go ahead.

Rakesh Sethia — HSBC — Analyst

Yeah, hi. Thank you Manoj sir. Thank you Tiwari sir for this opportunity. I had two questions, First one is on the InvIT. I believe there was a comment in the media, where our company seems to be considering of putting through pipelines in the InvIT structure. So if you can share the thought process around the same, how will that help the company? And are you expecting that before the InvIT happen, are there any reforms either on the price or the tariff side required, before the InvIT connection will be brought to the market? And the second question was on the petrochemical capex — though the timeline is ’23, ’24 is the feedstock availability been taken care of, especially for the PDH plant, for which I believe there is a large capex being considered?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Our plant will be running on imported propane, for which the propane is available on the market, and we are making a tie-up for that, which is on the — no long-term tie-ups are required, but we are already doing along with the other OMCs, we can look for that and the imported propane is the feedstock. For the Pata projects, whatever is coming out of the Pata, the propylene, that will be used as a poly — for converting it to polypropylene. And the regarding InvIT part as yesterday also we informed, that we have announced in the budget, two of our pipelines will be market tested for the InvIT and for which we have sent our proposal to Ministry and then once we get the necessary approvals, then we will start working on that, and we expect that no significant changes in the regulatory and other — this thing are required. But some of the approvals definitely will be required from the regulators like PNGRB and all this Direct tax, and then also SEBI and all those, but those are the routine approvals, which we expect that, once we are ready should come.

Rakesh Sethia — HSBC — Analyst

If you can share, which are these pipeline — if you can share, if its possible?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Probably at this stage, we will not be sharing, but once we get the approvals, then those two will be frozen.

Rakesh Sethia — HSBC — Analyst

Okay, understood. And on the PDH project, would it be possible for you to share some of the economics considering it’s based on import of propane converting into polypropylene, and probably will be selling better in the domestic market or exports, if you can share, how the economics is working for this particular project. How lucrative this project has appeared to be for the management?

Manoj Jain — CMD, Director (Projects) & Director (HR)

This PDH PP is the first plant which GAIL is installing the country on this technology. It is propane dehydration unit and then from that propylene, we will be making polypropylene. And as of now and what we have seen, it is a robust model, where the crack available is a very robust crack, and it gives returns much above the our threshold hurdle rate.

Rakesh Sethia — HSBC — Analyst

Thank you, sir.

Harsh Dole — IIFL — Analyst

So there is a question in the chat box. I will read that out for you. It has come from Mr. Parth Parekh. What is the outlook on gas marketing margins in FY ’22 and what is the transmission volume CAGRs that you are eyeing over the next three years?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Can you speak a little louder about the second question?

Harsh Dole — IIFL — Analyst

So, what is the gas transmission volume CAGR that you are eyeing in next three to five years? That’s the second part.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Regarding the gas transmission volumes, I already responded. 6% to 8% is the CAGR, it is expected. And after three years, it is going to increase further from these numbers. And regarding the first, it was marketing…

Harsh Dole — IIFL — Analyst

Outlook on marketing margin in FY ’22.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. Marketing margins, as we all know, are the factor of the international prices. Definitely it is very difficult to predict them. But as of now, the futures available, we feel that that will be much better than the year of 2021.

Harsh Dole — IIFL — Analyst

Sure. Thank you. So next we have Vidyadhar Ginde. Vidyadhar, just unmute your line and go ahead.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Yeah. Getting it unmuted. Can you hear me?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. Go ahead.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Yeah. So my first question was on the gas marketing side. So, if you could give us some color on how much volumes you have already tied up or FY ’22 and FY ’23? And so, another related thing is that, for example, in the first year, when you started LNG imports from the US in FY ’19, on some volumes, you had already booked it at no profit no loss in the earlier year. Is there something of that sort which has happened because we’ve come from a very bad environment at some stage in the last year to gradual significant improvement? So have you locked in some volumes when margins were — there are no profit no loss or the profits were much lower than what it would be at today’s futures?

Anjani Kumar Tiwari — Director Finance

Regarding the demand part, which [Indecipherable] already said that the contracts are already in place worth 11.12 MMSCMD what he has already explained about the three fertilizer plants plus Matix plus RFCL. And we expect that at least three out of the six plants, three plants will be coming this year online and three maybe next year. So that’s the number which we are looking at this year and next year for the major consumer. Apart from that, we are also looking at few 5 to 6 MMSCMD of additional demand from some of the expansions. At the same time, some of the expansions of pipeline and new areas, we have the gasfill reach. On the transmission side, we are also looking at numbers from some of the refineries, which we’ll have to see how the IFs takes place.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Sir, my question was more on the marketing margin side as to — given that we’ve had prices, the oil as well as spot LNG from very low levels going up to much higher levels now. And so, have you locked in margin? At what stage have you locked in margin? So what’s the kind of outlook one can expect in FY ’22 and ’23 and what proportion of FY ’22 and ’23 US LNG volumes you have tied up already?

Anjani Kumar Tiwari — Director Finance

FY ’22, I can say around 80% we are tied up and 20% we have deliberately kept open to take advantage of the price variation for trading purpose and also looking to the upcoming consumers. Most of the volumes which are coming to India, we have tied up with a positive bias only, so that should not be a problem. In FY ’23, we have got, in US volume, around more than 50% has already been tied up. And remaining also, some of the volumes have been tied up, but the price is not fixed. And remaining 30% to 35%, definitely will go — as we go ahead, we’ll be tying up. But overall, if you look, then it will be slightly lesser than 20% of the total volume of LNG, which is coming from our portfolio.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

So could you have record gas marketing EBITDA in the current or next year, even better in your first year when US LNG came in given where the futures are trading today or in fact for the last few months oil prices have been at elevated and so have futures been? So, is there a decent probability that either FY ’22 or FY ’23 you could have a record EBITDA?

Anjani Kumar Tiwari — Director Finance

I cannot — just because I have not calculated the numbers. So, record-wise may not be correct. But, yes, one is that from last year, it will be much better. Number two, as you know that some of the volumes we are tied up earlier also. So those volumes may not touch what today what prices we are seeing. But definitely what we have tied up in the last two, three months, those will give us good margins. So from that perspective, this year we expect it to be a very good year. But record-wise, I may not be able to confirm. And lastly, what…

Manoj Jain — CMD, Director (Projects) & Director (HR)

Just to give you, Vidhyasagar ji, just to give you a perspective, we have, with the current prices which are there, as well as with the consumption which will be there in the country in the coming period with the fertilizer and gas, we can assure you that there will be good — better margin going ahead.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Lastly, just — how much of your volumes — LNG volumes are likely to be sold in the domestic market and how much outside in the current year and how much likely in the next year?

Manoj Jain — CMD, Director (Projects) & Director (HR)

This year, they are sold around 35 cargoes in the international market. These cargoes would slowly be tapering down when the consumption in the country will increase. So that way, it will be in the consumption in the country more. And there will be some strategic sale in the international market depending upon the cargoes as well as the market. So that we can’t give you any specific number at this stage, but these are the strategies as we have explained to you number of times.

Anjani Kumar Tiwari — Director Finance

Actually in addition, we will have more cargoes also this year, because our portfolio will also increase. So it is not that we are looking at just diversion from international to domestic. But number of cargoes will also increase.

Vidyadhar Ginde — ICICI Securities Limited — Analyst

Thanks a lot, sir. Thank you. That’s it from me.

Harsh Dole — IIFL — Analyst

So while I take the next participant, we have a question in the chatbox that comes from Kunal Agarwal. The question is, yes, transmission margins were very strong in 4Q, which probably were also due to certain LNG prices due to excess premium [Phonetic]. Can you share some insight on what was the positive carry on margin due to surge in gas price?

Anjani Kumar Tiwari — Director Finance

I think if I understood it correctly, primarily they are asking about our marketing margins on the gas.

Harsh Dole — IIFL — Analyst

That’s right.

Anjani Kumar Tiwari — Director Finance

So as I explained in the previous question also, primarily it is going to be better than last year. But many of our Indian consumers, we have fixed marketing margins. And whatever is the price is the pass-through, so there we’ll get that fixed marketing margin. And some of the areas where the selling is part are also short-term and mid-term. We will have better margins in India. Similarly, for whatever we sell in the international market, if you look present existing crude price as well as the attach number. So we expect that in this period what we are selling, they will get better margins. But at the same time, whatever we are already fixed in previous years for this year, the margins are already locked.

Harsh Dole — IIFL — Analyst

Got it, sir. Thank you. Next we have Nafeesa Gupta. Nafeesa, go ahead please.

Nafeesa Gupta — Bank of America — Analyst

Thank you. Can you hear me? Am I audible?

Anjani Kumar Tiwari — Director Finance

Yes.

Nafeesa Gupta — Bank of America — Analyst

Good afternoon, sir. So, my question firstly is on the status of the Urja Ganga pipeline, sir. Are we on track with Section 2 and 3 being completed in December ’21? And related to that, could you also give us a detailed offtake on fertilizer plants currently and are we seeing any kind of reduction due to higher LNG prices there?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Can you just repeat a little louder? I could not get the first question.

Nafeesa Gupta — Bank of America — Analyst

Sir, my question is on the status of the Section 2 and 3 of Urja Ganga pipeline, which is to be completed by December ’21. So are we on track for that completion by December ’21? And also, the detailed the offtake by the fertilizer plants, which we are seeing currently. Is there any reduction due to the increase in LNG prices? Are we seeing some stress there?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. The first one is that we are on track for December ’21 for all these sections except from Durgapur to Haldia where we expect some delays due to some other related issues in West Bengal part. Remaining of the actions, we are on track for December ’21. But as of now, if you look from Durgapur-Haldia section, no significant consumers are available on this section. So from the capacity utilization rate, this will not be affecting in this year at least significantly.

Regarding the second part is, the fertilizer part, there is no set impact there of fertilizers are running at more than the 100% capacity, most of the fertilizers. And we expect that the same trend of better utilization of fertilizer plants will continue. And our gas, wherever we have contract, we are taking full measures.

Nafeesa Gupta — Bank of America — Analyst

Sir, could you — is it possible to give a breakup of the offtake by the fertilizer plants?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Breakup-wise, in the new pipeline, if you remember, there are three HURL plants. Gorakhpur we started already taking for commissioning and we expect that in by July or August, they will start their final commissioning. And they may come on full load by August or September. For the second plant of Barauni and then Sindri, there are minor — some delays and maybe we expect that for the commissioning part, they will start taking this in this calendar year of ’21 and then later on they will go for commissioning. And on the Matix plant, they are almost re-commissioning. They are doing and maybe they expect that in a month’s time, the commissioning activities will be over. And then maybe after that in the month of July, they can start drawing gas in a significant number and then slowly ramp up to full capacity. On the — I mean, this is about the Jagdishpur-Haldia pipeline on the southern part. Already MCFL has started drawing and MRPL and OMPL are also slightly drawing and they will also further increase their this drawing on the southern part.

Nafeesa Gupta — Bank of America — Analyst

Thank you, sir. And sir, if I may, in this quarter, the LPG production volume were lower. And what is the status on that currently? Any color on that?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. LPG production is — actually our capacity is limited and we are running near to the full capacity. And secondly, it is also dependent on the quality of gas which we received in terms of richness of propane and butane from the domestic gas. So there is a minor fluctuation which takes place. And there — in this Q1, there might be some deduction in the production number because of some lean gas, which we received in the intervening period. However, largely this will be a variance of 10% to 15% sort of.

Nafeesa Gupta — Bank of America — Analyst

Got it, sir. Thank you.

Harsh Dole — IIFL — Analyst

All right. Next we have Mayank Maheshwari. Mayank, please go ahead.

Mayank Maheshwari — Morgan Stanley — Analyst

Thank you, sir, for your time today and the presentation. Just a couple of questions. Sir, first and foremost, on a bigger picture perspective, government has been focusing a lot on hydrogen-based CNG and hydrogen as a fuel as well. You talked about ethanol, you talked about renewables. Is there a plan around hydrogen as well from a GAIL perspective over the more medium-term?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. And that is definitely — it is there. And also it is being pushed by Ministry also. And we are primarily looking at injection of hydrogen into the City Gas Networks whether it is feasible and to what extent it can be done. So, the technical pilots we are looking at now. So it will take some time to establish those technical pilots and then probably improve upon that. But as you know that in IGL in Delhi, already at CNG, there at one CNG station from where at least 50 buses are already running on that CNG where the IOCL’s technology is being used for the hydrogen generation. And then it is mixed with the CNG and those buses are running exclusively as a pilot project.

And similarly, we are also looking at how we can use the green hydrogen by producing from the renewable sources and then utilizing it in producing hydrogen and then utilizing along with the — mixing with the natural gas. So these are all at the pilot stage. So, definitely as you rightly said, in medium-term, there may be something which will be coming.

Mayank Maheshwari — Morgan Stanley — Analyst

Sir, and just a follow-up on — this one was in terms of your new infrastructure that you’re developing, is it fair to say that you are looking at to make it hydrogen-ready?

Harsh Dole — IIFL — Analyst

Hello? Mayank, can you [Technical Issues] hear you well?

Mayank Maheshwari — Morgan Stanley — Analyst

Sure, Harshvardhan. Just a follow-up on the hydrogen question. Is it fair to say, sir, for the new infrastructure that you are developing, will it be hydrogen-ready in terms of your new pipelines, etc?

Manoj Jain — CMD, Director (Projects) & Director (HR)

It is too early to confirm that because it will need several approvals from regulatory authorities. And also, we have to test it. So once we do that those pilot testing and then submit our results to regulatory authorities, then probably it will be confirmed that, yes, we can do that. So we look from that aspect, but maybe it will take some time.

Mayank Maheshwari — Morgan Stanley — Analyst

Thank you.

Harsh Dole — IIFL — Analyst

And next, we have taken S. Ramesh. Ramesh, please go ahead.

S. Ramesh — Nirmal Bang — Analyst

If you look at the Kochi-Mangalore pipeline, there was a temporary hook up. So what is the status of the Kochi-Mangalore pipeline? Is the final configuration done there? And can you share with us the plans for the Kochi-Bangalore pipeline when it will be completed?

Manoj Jain — CMD, Director (Projects) & Director (HR)

The work on the final hook up is in progress. And already pilot and everything is done and final stages, we are doing. But since monsoon has arrived, so I’m expecting that by October or so we should be in a position to finish it if the monsoons interrupt. Otherwise, maybe in a month’s time, we can finish. That is about that. And remaining part of Tamil Nadu, we are pursuing with the Tamil Nadu state government and we are moving ahead. But although the speed is not what we expected, but we are slowly, slowly progressing towards Tamil Nadu. And Coimbatore, we expect to connect very soon.

And we have — all pipes have been ordered and they are at site. Contracts are in place. So that should not be a problem. But depending on the progress of opening up right of use or right of way, the progress will take place. So, the exact timing will be difficult to tell. But if we get the approvals in time and they are reopening, then maybe in next 18 months we can complete the Tamil Nadu section also, 12 to 18 months or so, depending on the progress.

S. Ramesh — Nirmal Bang — Analyst

So, if I understood you correctly, you’re talking about the Kochi-Koottanad-Bangalore pipeline being completed in 18 months and that Kochi-Mangaluru stretch, which was initially hooked up with the temporary line, that is now getting completion sometime during the next two quarters. Is that correct?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah, that is correct.

S. Ramesh — Nirmal Bang — Analyst

Yeah. The second thought is, if you look at GAIL gas, while on the top line you’ve been performing okay, the bottom line margins are that 3%, 4% range. So, when do you see GAIL gas reaching financial performance in terms of margins and return similar to, say, Mahanagar Gas or Indraprastha Gas? Is there any constraint in terms of scalability of the markets or do you need to make any additional investments, what is the challenge there?

Manoj Jain — CMD, Director (Projects) & Director (HR)

As such, there is no significant challenge and we expect to improve. Only there are two aspects. One is that we are spending a lot on capex in the new GAs. And as you know, new GAs take at least two to three years to become profitable. So that is one area. And second is the area Bangalore. Bangalore has not come up the way we expected initial four, five years. But once Bangalore — at least the state buses or the major vehicles pick up, then it can come up very fast. But that is the way where we have to make efforts. Infrastructure is almost ready in Bangalore. Now we have to create the demand. And maybe in this year, we were just revenue — I mean profit neutral in Bangalore. And in the coming year, we expect that it will turn into a profitable city and then the progress should be fast.

S. Ramesh — Nirmal Bang — Analyst

Okay. And just one more thought. So if you look at your overall investments on the gas pipelines, when do you see the aggregate capacity utilization reaching the normative level of 75%. At that level, I would presume you’ll be able to improve your returns on your transmission business to the normative 12%. So when do we see that happen? Because today it’s only about 53%, which is evident in the ROE in the pipeline business, just gross 10%.

Manoj Jain — CMD, Director (Projects) & Director (HR)

I think it is around four to five years from now, definitely we should be in a position to see. As I told you in the beginning also, we are expecting a growth of 6% to 8% for the next three years and then a better growth. So, from that perspective also, if you look then to reach to a 75% sort of number, it should be four to five years depending on the major customers, how they are on track or are they delayed. Primarily there are three sectors. One is the CGD sector. Many of the CGDs have come up. So we expect that already two years have passed, so next three years, they should pick up significantly. And most of them are connected on our pipelines.

Second is the refinery sector. Most of the refineries are undergoing for the conversion to the gas-based manufacturing or gas-based areas. And the third one is the — even some of the petchems are also coming along with the refinery. There also gas requirements will be there. And apart from this, the fertilizer plants are definitely going to come in next two to three years, all of them. So from that perspective, the 25 number should be achievable in next four to five years.

S. Ramesh — Nirmal Bang — Analyst

Okay. Just one last thought, can you share with us any inventory gains we may have had on the gas marketing business in the fourth quarter or FY ’21?

Manoj Jain — CMD, Director (Projects) & Director (HR)

I think the domestic prices are almost unchanged. So there is no change in the inventory valuations. So as such, it might be there but it will be only INR1 crores or INR2 crores or INR10 crores, a very small number.

S. Ramesh — Nirmal Bang — Analyst

Okay. Thank you very much and wish you all the best, sir. Thank you.

Harsh Dole — IIFL — Analyst

So while we take the next question, there are few interesting questions in the chatbox. One is, a question from Mr. Prashant Vaidya. Is there any plan to list GAIL Gas on the exchanges? And if so, what is the timeline?

Manoj Jain — CMD, Director (Projects) & Director (HR)

As such, there is no finalized plan to list GAIL Gas as of now.

Harsh Dole — IIFL — Analyst

Okay. Second is — it is a question from Mr. Pritesh Mehta [Phonetic]. And the question is, could you please share your latest offtake expectations from fertilizer plants which are under execution?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. I think I have covered in the earlier question, I can again repeat. Gorakhpur is one of the HDLL [Phonetic] plant which has started drawing for commissioning purpose and we expect it by August-September, they may come on full load. Barauni and Sindri, they will start drawing gas for commissioning purpose by the end of this ’21. And then later on, they can come up with full load, three to four months or so. And Ramagundam has already started drawing almost full. There was some setback in between, so now again it will come up. Matix, as I already explained that they are in the pre-commissioning still and maybe by July end, they will be in a position to draw to a significant number.

Harsh Dole — IIFL — Analyst

Thank you, sir. We’ll take the next question from Jaswinth K [Phonetic]. Jaswinth, go ahead. Your line is on mute.

Jaswinth K — — Analyst

Hello.

Harsh Dole — IIFL — Analyst

Yes, Jaswinth.

Jaswinth K — — Analyst

Hello. Am I audible?

Harsh Dole — IIFL — Analyst

Yes.

Jaswinth K — — Analyst

Yeah. Hello, sir. Thank you for taking my question. Sir, my question is regarding CNG stations [Technical Issues].

Harsh Dole — IIFL — Analyst

Can you be a bit louder? Now your voice is coming very feeble.

Jaswinth K — — Analyst

Yeah. Sir, my question is regarding CNG stations in Bangalore, which we are doing in agreement with Confidence Petroleum. So, I wanted to know what are the gas pricing terms in terms of what price gas will be — we will be supplying to them. And what is our expectation on volumes?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Probably exact number, it will be difficult to give, but Director-Marketing will touch upon the thing. And for the consumer, the ultimate selling price will be same, but remaining, regarding the agreement, our Director-Marketing will give some details.

E.S. Ranganathan — Director, Marketing

Yeah. As you said, the selling price of CNG is fixed for the whole of the city, that will be same. Plus, this is a dealer-owned dealer-operated model. So there we have a specific commission system. So we will be paying a commission to them per kg basis and then the gas — our gas will be sold by him. And then we will collect the revenue from there.

Jaswinth K — — Analyst

And sir, the commission would be, say, around INR10 per unit or would there any number, would you like to comment on that?

E.S. Ranganathan — Director, Marketing

I can’t say right now. It varies from station to station also depending on location.

Jaswinth K — — Analyst

And any expectation on volume side from those stations?

E.S. Ranganathan — Director, Marketing

Yes, of course. We expect that some 20 stations will come online immediately and that will increase the sale by at least 1 lakh kg per day.

Jaswinth K — — Analyst

And sir, any reason for choosing Confidence and not going with this Panadon [Phonetic]? And are we in discussion with Confidence Petroleum or any other player on more such cities?

E.S. Ranganathan — Director, Marketing

We are open to all. Actually our website has a permanent expression of interest, so anybody with land can actually apply and then we will be signing with them also, provided they are not bunched together in one place.

Jaswinth K — — Analyst

Thank you and all the best.

Harsh Dole — IIFL — Analyst

Thanks. So next we have Nitin Tiwari. Nitin, please go ahead. Your line is on mute.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

Good afternoon, sir. Thanks for the opportunity. So my question is related to the petchem project. I hope I’m audible.

Harsh Dole — IIFL — Analyst

Yeah.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

So, sir, what is the rationale behind diversifying into polypropylene and not basically expanding capacity in the polyethylene itself in which the raw material is perhaps already there in your pipelines and you are just circling with expand capacity. So what is the rationale behind getting into polypropylene, which is — for which you’ll actually have to import raw materials?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. There are two aspects. One is that the — for the poly — GAIL’s portfolio is polyethylene heavy. So we want to have a balanced portfolio for GAIL. We are both polyethylene and polypropylene. We do have portfolio and we can serve the consumer to its fullest. That is one part. Second, regarding the availability of ethylene for the polyethylene, whatever gas has got primarily at Pata whatever is our capacity, almost to the fullest we are able to extract. So from the natural gas which is available, we are trying to cover more than 90% of that. So remaining natural gas, which is now coming from the Eastern Coast, that is the lean gas. So that has got very low percentages of ethylene — ethane. So from that perspective, even if we go for ethylene or ethane-based petchem, then also we’ll have to import only.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

So — but sir, in case of IRRs, both projects would be having similar IRRs. I mean, like both — like have you gone for a polyethylene expansion vis-a-vis the polypropylene project you’re putting.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah, polypropylene — this is the first new technology where exclusively we are going for polypropylene. So since it is a plant which has lesser byproduct and more focus on the main product, so here IRRs are good. That’s why we have gone for this technology. And the polyethylene which you are talking, Pata is actually we are utilizing the existing fleet available from the Pata itself. That’s why it’s a smaller number, 60,000 tons.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

Right, sir. And sir, my second question is related to US LNG cargo. So, is the understanding right that in the fertilizer plants which are coming up on Jagdishpur-Haldia pipeline, they’ve all contracted US LNG cargoes. So your cargoes would be getting consumed with these fertilizer plants. Are they exclusively US LNG cargoes or there are other gas cargoes also which they have taken?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Actually we — as you know that we have got two contracts in US to bring LNG, one contract with Russia to bring LNG. And apart from this, we have got through PLL, this Australian Gorgon LNG as well as Qatar. So if you look from this total portfolio, especially the portfolio of both the US and Russian, then this is a portfolio out of which we supply to various fertilizer plants and at different indices. So, as such, there is no specific level [Phonetic] of US or Russia going to a specific fertilizer plant. But our selling price and the buying price, we are trying to balance.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

Understood, sir. And sir, lastly, on your City Gas portfolio, so you have substantial investments in a number of City Gas companies which are your subsidiaries. So, given we are considering value unlocking through InVit in the pipeline business. So any thoughts of unlocking value new City Gas investments? I think you have a portfolio of almost 11 odd companies over there where if you want to unlock value, that could be substantial in nature.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. We can probably — immediately there is no firm plan. But definitely this area where we can think in future when we need money. Actually now we have very cheap debt available. So we thought of utilizing that first. And value unlocking, at the right moment, definitely even if near future it comes, we’ll use that right moment of unlock the value.

Nitin Tiwari — Antique Stockbroking Ltd. — Analyst

Thank you so much, sir, for taking my questions. And wish you all a lot of health and please take care of youself.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you.

Harsh Dole — IIFL — Analyst

Next we have Vishnu Kumar. Vishnu, go ahead please.

Vishnu Kumar — Spark Capital — Analyst

Thank you. Thanks for your time. Firstly, wanted to understand, will Urja Ganga Phase 2 and Phase 3 tariffs, when should we expect it? And in the meantime, how should — because we are sending and shipping a lot of fertilizer gas there, what would be the provisional tariff that will apply?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Provisional tariff should not be a problem because we have got the capex numbers so we can’t easily calculate and apply. And then, once the final numbers come from regulator, then we can adjust on the future tariff number because now there are no retrospective tariff revisions. So, as such, that should not be a problem. When those things come, we should be able to do it.

Vishnu Kumar — Spark Capital — Analyst

What will be the rough rate that will apply, sir?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Rate, it is very difficult to tell at this stage. But if I remember, if you look from that perspective, probably it was in the range of around — maybe in the range of — maybe between $1.25 to $1.5 or something.

Anjani Kumar Tiwari — Director Finance

This is including Phase 1, Phase 2 and Phase 3, all three put together.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah.

Vishnu Kumar — Spark Capital — Analyst

Understood, sir. Sir, in terms of our own tariff, the tax adjustment part is spending and also just wanted to understand your thoughts on unified tariff. Obviously PNGRB, we understand the lack of quorum. When do we expect some kind of a resolution on this?

Manoj Jain — CMD, Director (Projects) & Director (HR)

On unified tariff?

Vishnu Kumar — Spark Capital — Analyst

Yes, sir. And also, your own — all the pipelines, the tax adjustment for — tariff for all the pipeline?

Manoj Jain — CMD, Director (Projects) & Director (HR)

For the unified tariff, I think the date of commencement is yet to be notified. So we actually can’t pinpoint a number or a specific date when the quorum will be there and then they will have to work on that. Then after that, it may take few months to come into force after hearing for and working out a methodology among the different payers. And we have also submitted some of the suggestions, so maybe some minor changes may also come up. So all those things are yet to be finalized. Once the quorum comes, then only these things can be confirmed.

Vishnu Kumar — Spark Capital — Analyst

And just my last question, on the Phase 3, have we — especially in the steel territory, have we signed up any contracts with any of the steel players? Was there an alliance [Phonetic] in Phase 3?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. Some of the MoUs and contracts we have signed, but it is not a big number like that 2 or 3 MMSCMD startup because their basic process is not ending. On the auxiliary side, there will be definitely — to begin with, take the gas and slowly, slowly once we gas becomes available and they are seeing the benefit, maybe they can go for expansion and all those. At that time, more demand may come. But most of the steel plants have either MoU or a agreement for supply of gas along that pipeline.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. So, just to clarify on the Urja Ganga pipeline rate, so let’s say Matix fertilizer is going to receive the gas, which is on Phase 3 — Phase 2 rather. So the total tariff will be, the HPGL line of INR40 and $1.25 of the Urja Ganga line, roughly INR100 plus. Is that a right assessment?+

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yes, that is true. So long as the supplies are from that, it’s true.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. Thank you.

Manoj Jain — CMD, Director (Projects) & Director (HR)

For that, the number of these $1.25, $1.5 is a provisional number, we’ll have to work out.

Vishnu Kumar — Spark Capital — Analyst

Got it, sir. Thank you.

Harsh Dole — IIFL — Analyst

Thanks, Vishnu. So we have last two questions. We have now Venkatesh Subramaniam. Venkatesh, please go ahead.

Venkatesh Subramaniam — — Analyst

Hi, sir. Good afternoon. I have two questions. So, one is a follow-up question on the Confidence Petroleum thing, and that is also related to GAIL Gas. What is the vision for GAIL Gas for the next three to five years in terms of number of firms or in terms of top-line? Do you think this could be a very big enterprise? That’s number one. Number two, the related question is on Confidence Petroleum, which is, what is the economics of this? When you actually give out these franchisees, how does the sharing work? Just to get us — we just want to calculate unit profitability, sir.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Regarding the expansion plans, definitely. As we said that we are already, I think nine more deals we have recently won. So definitely GAIL Gas, we are looking at significant growth. And in terms of CNG stations, definitely we are looking at, at least doubling the CNG stations in next two years of the total CNG sustainability [Phonetic] last year. Even last year when the pandemic was there, we did 75 number, Director-Marketing has just confirmed. So, definitely this year we will be doing more than that 75 number definitely. And next year also, numbers will be more. So that is our objective to further expand. And we expect that there will be a significant growth in terms of not only CNG station but industrial and commercial and domestic numbers also.

And the second part about — this is a new model which we are working out for the last one year, the dealer-owned dealer-operated. And that is open to all the deals. So, definitely it is going to be a beneficial private entrepreneurship entering into a CGD area. And at the same time, the licensor of that GA will also be benefiting from expanding the footprints of natural gas.

Venkatesh Subramaniam — — Analyst

How does the sharing works, sir, in terms of between these franchisees and GAIL?

Manoj Jain — CMD, Director (Projects) & Director (HR)

As Director-Marketing told in the earlier question, it is a commission on per kg basis.

Venkatesh Subramaniam — — Analyst

Okay. Okay. So, great. So one last question, sir, which is, many years back, we actually held some stake in China Gas. Do we still have some holding there left?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. We have got holdings and that is giving a very handsome appreciation of investment.

Venkatesh Subramaniam — — Analyst

Okay. I hope we become larger than them, sir. Sure. Thank you very much.

Manoj Jain — CMD, Director (Projects) & Director (HR)

But our share percentage is very small.

Venkatesh Subramaniam — — Analyst

Yeah.

Manoj Jain — CMD, Director (Projects) & Director (HR)

It is around 2% or so. But still number-wise in terms of Hong Kong dollars and then rupees, it is — investment is worth around INR4,000 crores or something. Yeah, around INR4,000 crores.

Venkatesh Subramaniam — — Analyst

Yeah, that’s right. And you divested some in 2013-’14.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah. After that also, now it is INR4,000 crores.

Venkatesh Subramaniam — — Analyst

Sir, would it be fair to ask on — I know that I’m probing a little bit deeper. But just to understand this franchisee model, when somebody like a Confidence is getting a franchisee for INR100 crores, if tomorrow somebody else applies for another INR100 crores, INR200 crores, INR300 crores, they are open to tie-ups with most people. Is there a scalable opportunity?

Manoj Jain — CMD, Director (Projects) & Director (HR)

But as Director-Marketing correctly pointed out, we have to see the overall scope also. Otherwise, actually if it doesn’t make business sense for us and for them both, it will not be a win-win position and then it will not be sustainable. So that is the only caveat, otherwise we are open to anybody in joining us.

Venkatesh Subramaniam — — Analyst

All right, sir. Thank you very much. Thanks, Harsh.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thanks.

Harsh Dole — IIFL — Analyst

All right. So next we have Manish Jain. Manish, go ahead.

Manish Jain — GormalOne — Analyst

Yeah, hi. I wanted to know, are you working on any carbon capture technology? And AKT, can you share the size of the technology?

Anjani Kumar Tiwari — Director Finance

As such, we are not actually working on research or commercial basis on any carbon capture technology as of now.

Manish Jain — GormalOne — Analyst

Okay.

Anjani Kumar Tiwari — Director Finance

Just to give you a perspective, though we have made some studies in the past from our petrochemical plant what if our CO2 goes into the environment, can that be captured and brought back, but so far that has not materialized into an outcome with some numbers or something. But we have done some studies, not any research sort of.

Manish Jain — GormalOne — Analyst

And earlier you alluded to hydrogen, besides the FTS CNG buses at Delhi, when and where, in terms of scope and size of the project, do you plan to start technical filings?

Anjani Kumar Tiwari — Director Finance

As I said, it is true. IGL has been done with the IOCL’s cooperation with the plant, which has been made near to the Rajgarh Delhi CNG station itself. And that 50 number is a pilot basis. And then after that, ARI will be checking the parts of the buses, what is the performance and all those things. Once that outcome is there, then that probably pilot will be complete and then we’ll think of next step.

Venkatesh Subramaniam — — Analyst

Okay. So basically I just wanted to know, besides IGL, are there any other initiatives or [Indecipherable] that you plan to take on technical base [Phonetic]?

Anjani Kumar Tiwari — Director Finance

We are also looking at some of the areas where we can — how we can inject the hydrogen into the CGD networks. That steady pilot study we are looking.

Venkatesh Subramaniam — — Analyst

Thank you so much, sir.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you.

Harsh Dole — IIFL — Analyst

So I do realize we are on the clock, but there are quite a few questions in the queue. With your permission, can I take the last one?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yeah, please.

Harsh Dole — IIFL — Analyst

The last one is from Pinakin Parekh. Pinakin, go ahead please. Pinakin, go ahead. Your line is on mute. I guess there is some…

Pinakin Parekh — JPMorgan — Analyst

Am I audible?

Harsh Dole — IIFL — Analyst

Yeah. Now we are audible, Pinakin, go ahead.

Pinakin Parekh — JPMorgan — Analyst

Yes. So basically my first question relates to the Gas Marketing segment. Historically this is a business which gave an EBITDA of INR600 crores a quarter in FY ’19, FY ’20. And this quarter, it’s INR300 crores. And you mentioned about the volumes which have been already booked in. So, fourth quarter EBITDA, is that the new run rate we should expect in fiscal ’22 or we can go back to the INR600 crore-plus EBITDA per quarter that we saw in F ’19, F ’20?

Anjani Kumar Tiwari — Director Finance

It’s really a difficult question you’ve asked. But I can only say, probably the actual answer will lie in between the two maybe. But that INR600 crores number was really very, very ambitious number at that point of time. And the markets are now since in a different mood, from the perspective of the — one is the spot market is not moving in tandem in long-term markets. So everything you diversified, that is spot market does not follow the long-term and these supply-demand curve. It is a spot or momentous supplies, which are governing the spot market. So from that perspective, those high numbers are really now difficult to achieve. But one good thing is that both crude at this stage as well as the spot are up. So this time, we expect that you have some good numbers should come. But this — I have repeatedly been telling and again I’m just repeating that some of the cargoes we loved earlier, those cargoes will not see these amazing numbers. So overall portfolio wise, we have to have a mix of both the safety as well as the improved gains.

Pinakin Parekh — JPMorgan — Analyst

Understood, sir. Sir, my second question relates to the capex plan that you have announced. Now broadly if you look at the capex that GAIL will incur over F ’22 and F ’23, how much does the company fund — expect to fund it via debt, given the visibility it has on cash flows, given the visibility it has on InVit monetization? How much additional debt would the company take over the next two years?

Anjani Kumar Tiwari — Director Finance

Considering our internal generation, we are expecting to around INR4,000 crores to INR5,000 crores each year to meet the capex plan. But it depends upon the margins which we have for internal generation. Then it will be around INR10,000 crores in the coming three years. That would be the plan.

Manoj Jain — CMD, Director (Projects) & Director (HR)

And also, if I may add, it depends on how much dividend our promoters expect. So all those things have to be taken into account.

Anjani Kumar Tiwari — Director Finance

Yeah.

Pinakin Parekh — JPMorgan — Analyst

Sure, sir. And my last question, basically if I break it down the capex into three parts, one is the pipeline capex, the other is basically the petchem-related capex and the third is basically the capex that will be done in renewables and other new businesses. Now, the pipeline capex comes with a broadly ROCE ROE concept. The petchem capex will have its own dynamics in terms of the headline commodity prices. But in terms of the renewable energy capex, whether it’s solar or any other thing, would that have an in-built assured ROE when the company is undertaking the capex or the company’s profitability will be a function of how those businesses evolve and how the market evolves?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Actually in business, nothing is fixed and nothing is permanent. But definitely our endeavor is that even for the renewable side also, we are looking at assets which are — most of them are having tied up output also. So from that perspective, we expect that the returns will be in a range which is near to our hurdle rate. So there should not be significant worries once we opt for an asset. And that’s the reason that probably our portfolio may not grow very significantly though we would like it to grow, because many of the other players can go much, much aggressively, but we would like to strike a balance between our vision to enter into this area but without sacrificing on our returns.

Pinakin Parekh — JPMorgan — Analyst

Understood. Very clear. Sir, just a clarification to a previous question that was asked on the tax rate and PNGRB tariff resetting. Is it fair to assume, sir, that any tariff which are reset going forward, whether it is a unified tariff, the Urja Ganga tariff or the existing tariffs would have the new corporate tax rate as one of the input variables in PNGRB’s calculation?

Manoj Jain — CMD, Director (Projects) & Director (HR)

Yes.

Pinakin Parekh — JPMorgan — Analyst

Understood, understood. Thank you very much, sir. Thank you, Harsh.

Harsh Dole — IIFL — Analyst

All right

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you.

Harsh Dole — IIFL — Analyst

Ladies and gentlemen, we have absolutely run out of time. And I do realize there’s a lot of questions in the queue. I would request will you send me an e-mail and I will have it answered from the GAIL management. And you could write in the space [Phonetic] now and I’m sure we’ll be able to explain the [Technical Issues].

And on behalf of IIFL, I would like to thank the management as well as all the participants who are talking on the conference. GAIL management, thank you very much, sir, for giving us an opportunity to host this event. We greatly appreciate the opportunity, look forward to continue [Technical Issues]. Thank you.

Manoj Jain — CMD, Director (Projects) & Director (HR)

Thank you very much. Thank you, Mr. Harsh, for nicely interaction with all our stakeholders. And we are very happy and we would like to thank each and everyone of you who have spared your time and also given some of the learnings to us also how we can improve upon further in future. Thank you very much.

Anjani Kumar Tiwari — Director Finance

Thank you. Thank you very much.