GAIL (India) Limited (GAIL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to GAIL India Limited Q2 FY '27 Earnings Conference Call hosted by PhillipCapital. [Operator Instructions] Please note that this conference is being recorded. I would now hand the conference over to Mr. Nitin Tiwari from PhillipCapital. Thank you.

Thank you, Muskan. Good day, ladies and gentlemen. Best wishes in advance for upcoming festive season. On behalf of PhillipCapital India Limited, I welcome everyone to GAIL India Limited's Second Quarter FY '27 Earnings Call. Today, we have the pleasure of having with us the senior management of GAIL led by Director of Finance, Sri Sinha. I will now hand over the floor to the management for their opening remarks, which shall be followed by a question-and-answer session. Over to you, sir.

Thank you, Nitin. Good evening, everyone. It is always a pleasure to talk to the investors and analysts, and we are deeply thankful for your continued trust and engagement with GAIL. The company has declared its results for the Q2 FY '26, '27 days, which you must have seen by now. I will talk about highlights, business overview, outlook, status of capital expenditure, and then we will take your questions. I will start with key business highlights for the quarter. Number one, GAIL won prestigious award PNGRV Excellence in the category of Gas Transporter of the Year and Health and Safety. GAIL recorded the highest ever natural gas transmission of around 148 MMSCMD on 21st September '26. Quarter 2 FY '26-'27 was another quarter of robust and busigilous performance even as a challenging time continue. The base crisis has now gone on for over 8 months and the company volume from the Middle East demanded disturb. This was partly offset through portfolio flexibility and spot sourcing. GAIL's diversified portfolio again proved to be a key strength in navigating the quarter effectively. Gas price continue to be volatile and quite high. around $30 to $32 per MMBtu. Throughout this crisis, our teams have been vigilant and agile and have kept the will in motion. Even as the times remained challenging, as a company, our prime focus has been to meet our customer requirements so that they are not left dry run. Our feeding are in Singapore supported gains in the sourcing spot volume from time to time, and we could prioritize supply to our customers. The company continued to focus on operational efficiency and on creating sustainable value for our stakeholders. PBT and PAT during the quarter stood at INR 5,838 crores and INR 4,650 crores, respectively, almost in line with the previous quarter. For half year this financial year, PBT and PAT stood at INR 1,611 crores and INR 8,943 crores, respectively, which is a growth of more than 16% as compared to the H1 of the previous financial year. Moving to the segment-wise, starting from the natural gas transmission. Natural gas transmission volume for Q2 FY '27 stood at 130.10cMd as against 122.36 MMSCMD in the previous quarter, an increase of about 6.3%, in line with the recovery in the gas consumption in the country. During the quarter, we also recorded our transmission volume of 147.5 MMSCMD on 21st September '26. Overall natural gas transmission volume for H1 FY '27 stood at 126.25MScMd. We expect that the natural gas transmission volume FY '26-'27 should be around 126,127MScmd in circumstances. Moving to the gas marketing. GAIL sourced 18 spot cargo during the Q2 FY '27 as against 8 cargo during Q1 FY '27. -- cargo we are sourced through the GGSPS. Our gas marketing volume for Q2 FY '27 stood at 97.23Md as against 93.82Mmd during Q1 FY '27, an increase of about 3.6%. Gas consumption in the country was seen returning to the levels prevailing before the crisis. During Q2 FY '27, the company earned a natural gas marketing margin of INR 3,448 crores at PBT level as against INR 3,353 crores for Q1 FY '27. -- the Henry Hub link portfolio continued to generate higher on account of sustained high crude prices, whereas gains from the JCC 9-month linked sourcing moderated. In view of, we update our gas marketing margin guidance to around INR 9,000 crores to INR 9,500 crores at PBT level for FY '26-'27. The range assumed continued volatility and accounts for the disturbed long-term supply during the year. Moving to the polymer business. Polymer production during the quarter stood at 2.4 TMT as against 51 TMT in Q1 FY '27. And due to the scale of operations, the segment remained around breakeven level during the quarter and is expected to be at the same level during FY '27. Moving to the LS and LPG transmission. In the LPG transmission segment volume improved by 5% and stood at 1,130 TMT as against 1,077 TMT in Q1 FY '27, primarily due to improvement in volume from flow in BSPL. Overall capacity utilization stood at around 98% for the quarter. In the LSC segment, production increased by 10% to -- in view of ongoing crisis, we restarted operation at our Dhar plant and LSC production of 32 TMT was achieved during Q2 FY '26. The segment generated a PBT of INR 442 crores during Q2 FY '27 against INR 772 crores in Q1 FY '27 on account of lower price realization by INR 18,000 per metric ton. business. We have already received PNGRB for transfer of GAIL GH to the GAIL Gas to have a retail focused approach thereafter, GAIL Gas Limited will be listed for which necessary action is underway. CGD have 219 CNG stations and DPNG connection. Gas, which currently operates 16 G directly and 9 G through its JV has a network of 593 CNG stations over 8 lakh DPNG connections. Quarterly profit of GAIL Gas increased by around 50%. GAIL Gas marketed around CMD volume during H1 '26-'27. Moving to the ongoing projects and CapEx. During Q2 FY '27, GAIL incurred a capital outlay of INR 1,425 crores for H1 FY '27. The cumulative CapEx stood at INR 7,600 crores. INR 1,900 crores is expected to be incurred towards the CapEx during the current financial year. This sustained investment underscores our commitment to strengthen gas infrastructure, enhancing downstream capabilities, advancing clean energy projects and supporting India's long-term energy transition and energy security objectives. Moving to the segment-wise CapEx program. pipeline projects, BDPL remaining section, KMBPL Phase 2, Gurapur Jammu pipeline and C2C3 pipeline are scheduled for completion in the current financial year. Vijaipur Bina pipeline, DPLDPPL capacity augmentation are scheduled for completion in the next financial year. JLPL LPG pipeline capacity augmentation is scheduled to be completed in FY ' 28-29. -- petrochem project -- the 1,250 KTPA plant at GMP is in the advanced stage of commissioning and should commence commercial production very shortly. The 500 KTPDPP plant is to be commissioned during the next financial year. scheme. The has operational CBG plant at Ranchi and others are under construction. Company has registered 10 CBG plants on Goan portal, including operational, 6 under construction and 3 under approval. It is expected to receive capital assistance of around INR 100 crores for 5 under construction CBG plants under the Goan scheme. LNG Limited. The company expects the ambient heating system to be partly commissioned by March '27 and to be fully completed by September '27, post which full 5 MMTPA can be utilized for full year and around 80 cargoes can be served annually. Moving to the renewal segment, GAIL remains committed to achieve its net zero target by year 2035 for Scope 1 and Scope 2 emissions. we have 155 megawatts of renewable energy portfolio, which includes 180 megawatt wind and rest is solar. additional 908 megawatt renewable power capacity under construction along with 572 megawatts of the battery energy storage system. With completion of the project, GAIL will have a renewable energy portfolio of around 1 JV. That concludes my overview of the quarter performance, segment outlook

Congratulations for a very strong set of numbers. Just wanted to understand your thoughts on where this strong gas demand is coming from in the sense that despite the kind of strength we have seen in LNG prices, in Europe -- I mean, if you can just give us some sense of which segments consuming segments are actually seeing traction? And is it more a function of organic demand or also a continued switch over from other alternate liquid fuels, which have also obviously seen price increases over the last 3 or 4 months. Just your thoughts on this. That was my first question.

Thank you, Paalji. As you know, we have major 5 segments where gas consumption is happening. Number one, fertilizer; second, power; third, CGD, fourth industries. and fifth other consumers. So during the Q2, power sector and fertilizer sector were consumed more gas as compared to the previous quarter. So power sector consumption of power sector has increased from 10% to 12% during the Q2 FY '27. Similarly, in the fertilizer sector also, gas consumption has increased from 32% to 33%.

Okay. And sir, this percentage increase versus Q1 Okay. So on a Q-o-Q sequentially, that is the kind of increase we have seen?

Yes.

Got it. The second question was, sir, of course, around the trading business. Obviously, I think this is a question you would have been asked that Q1 itself that the guidance remains fairly conservative. Now if I look at the run rate that is there for the first couple of quarters, we are already sitting on somewhere around INR 6,500 crores or so of EBITDA. So one should again sort of assume that this is sort of the INR 9,000 crore number that you just mentioned, this is again sort of the minimum level that you hope to achieve. And if the current situation were to persist, there is a reasonable chance of upside risk to these estimates. Is that a fair way to look at it, sir?

Basically, based on the internal calculation, we around INR 9,000 crores to INR 9,500 crores based on all the work and all the gas supply will be happened in HH price is around $10. So we are mixing the gas with the spot as well as HH and other portfolio, and we are supplying to gas to the customer. So during the Q3, I think our 9 months versus 3 months, what we currently gaining more margins, this will not available during the Q3 and Q4.

To what our Director Finance has said... Further to add to what our Director Finance has said, this is a reasonable estimation of our marketing PC, which we have estimated. So the INR 9,000 crores to INR 9,500 crores is the reasonable band based on current situation, which we could estimate. So we are not saying that it is whether optimistic or pessimistic, but it's a reasonable estimation.

Got it, ma'am. One last question, if I may. In terms of the transmission segment, sir did mention that you reached an all-time high somewhere around 147 MMSCMD, if I'm not mistaken.

148...

148, 148. So what has been the October run rate, sir, if one can ask?

I have already told you that during the current year, it will be around 126, 127 MSM on a yearly average basis. And next year, it will be around 134, 135 -- as a particular date, this was 148, but not regular basis. On an average basis, it is around 126, 127.

So we should -- that is for the second half of the year

The next question is from the line of Patel from Equirus Securities Private Limited.

Just 2 questions. One on this petrochem expansion of VH plant, where are we in terms of time line and in terms of commissioning, there has been a slight delay in overall project progress. So that's the first question. Second question is related to overall LPG business, the volume has been flat. But are you getting more domestic gas, APM gas to manufacture -- to produce the LPG because there has been a shortage in the past, which is currently not there. Has there been any discussion related to that with Ministry?

Coming to your first question, PDH plant will be commissioned during the next year. I think as per schedule completion, it is 30th June '27. And this may take more 6 months plus/minus time schedules. So certainly, this plant will be commissioned during the year '27, '28. And second question regarding the LPG. So we are getting around 1.9 MMSCMD domestic gas for production of LPG and other liquid hydrocarbon. So we are fully allocated domestic gas for the production of LPG and other products.

Got it. Sir, do we get any gas for that or the LPG it's only...

W and 1.12 is APM gas that we are getting. And based on the gas profile, which we are getting domestic gas profile, this is the maximum we can produce. We have restarted our Gandhar plant as well to meet the country's requirement. And this is the maximum production level based on the domestic gas profile that we are getting from ONC.

We are extracting C3, C4 plus -- so right now, whatever molecule available in the gas, we all extracted from the natural gas. So based on the molecule available, we are consuming gas around 1.9 MMMD.

1.2 is APM and remaining is...

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

And just on the trading segment, while this year, you are raising the guidance now to INR 9,000 crores, INR 9,500 crores, as you said. Is it also for next year? Or like how is the guidance for that?

Next year, I think the situation will be normal. So our normal guidance is around INR 4,500 crores to INR 5,000 crores in the next year.

So as of now, you've maintained that...

Yes.

Sure. And also on the petchem business, so you have reported a small positive EBITDA here. Just wanted to know what is the gas and the cost of gas in the quarter for petchem?

Basically, we have gas from the source. We have H gas, we have JC gas, we have spot gas. So we are providing around 40% to 50% HH gas and 40% to 50% spot gas. So based on this mix, we are able to manage EBITDA positive in the Q2 FY '27.

And this mix will continue, right?

Yes.

Got it. And what was the average cost that came in Q2 for the gas?

13.6...

So even though you said that 4050 was spot LNG, but the average was $30.6 I mean HH was $10, right? And as you mentioned that the cost is $10 for HLNG -- around $9...

Ranging from $20 to $30, $32.

We are allocating gas to petrochemicals from our existing portfolio, which includes JCC, some midterm gas and HH as well. So it is based on the availability of gas in our portfolio, we are allocating it to our...

Understood. Understood. And also the transmission OpEx has risen a bit in the quarter. So any kind of one-off over there? Or is it like a normal cost inflation that we are seeing?

Just hold. You're talking about the Q2?

Yes, the second quarter.

It is basically the Fuel cost because the transmission volume has increased. So we need to run our compressors to push the gas basically the fuel cost.

The next question is from the line of Nitin Tiwari from PhillipCapital.

There were a few questions from my end. Sir, we are seeing a lot of reports about increase in logistics costs as far as crude sourcing is concerned. So are we facing similar challenges in increasing freight for LNG tankers as well? And is there any shortage that we are seeing for LNG tanker availability while we are s...

Can you come again, please?

Ma'am, I was asking that are we seeing any challenges with respect to increase in freight cost quality of LNG tankers when we schedule cargoes?

No shortage. We have 6 cargoes on our long-term portfolio, which I think are LNG from U.S. Further, we are getting vessel.

So ma'am, the spot cargoes that we are, I mean, are those on FOB or DES basis? And like how is the shipping taken care of in those cases?

On basis.

Basically, some time we are optimizing our shipping portfolio through days.

The spot car sourcing is on delivered basis, if that is what you are referring to...

That's helpful. And secondly, also wanted to understand that what's the prognosis for petrochemical plant at Pata? I mean we have had been facing challenges with profitability. I understand that these are like in a somewhat challenging environment. But when things normalize, like what kind of a normalized profitability we can expect from this unit? And when can we foresee that happening, if you can throw some light on that?

Currently, the sales realization of petchem is around 136,000, 137,000 per metric ton. We are supplying gas around $14. So based on $14 and 140,000 price, we are achieving at breakeven. So if during the next year's price drastically come down to around 90, 5,000 per metric ton, then suddenly gas price will also reduce from the existing level to $9, $10. So I think based on the $90,000 price and $9, $10 input cost, we will achieve breakeven.

The next question is from the line of Sabri Haza from Emkay Global Financial Services.

Congratulations on good set of numbers. So my question is pertaining to this 190 MMSCM PLL volumes. So was there a financial benefit from that during the quarter, which was part of the marketing earnings?