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Edited Transcript of PETRONET.NSE earnings conference call or presentation 30-Oct-19 5:30am GMT

Q2 2020 Petronet LNG Ltd Earnings Call Hosted by BOB Capital Markets Ltd

New Delhi Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Petronet LNG Ltd earnings conference call or presentation Wednesday, October 30, 2019 at 5:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Prabhat Kumar Singh

Petronet LNG Limited - MD, CEO & Whole-time Director

* Vinod Kumar Mishra

Petronet LNG Limited - CFO, Director of Finance & Director

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Conference Call Participants

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* Aditya Suresh

Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst

* Amit Rustagi

UBS Investment Bank, Research Division - Analyst

* Avadhoot Sabnis

CIMB Research - Analyst

* Bhavin Gandhi

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Mayank Maheshwari

Morgan Stanley, Research Division - Research Analyst

* Nafeesa Gupta

BofA Merrill Lynch, Research Division - Research Analyst

* Nilesh Ghuge

HDFC Securities Limited, Research Division - Research Analyst

* Probal Sen

Centrum Broking Limited, Research Division - Analyst of Oil and Gas

* Rakesh Sethia

HSBC, Research Division - Analyst of Indian Oil & Gas Sector

* Rohit Ahuja

BOB Capital Markets Limited, Research Division - Analyst

* S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst

* Saurabh Handa

Citigroup Inc, Research Division - Director

* Sujit Lodha

Aditya Birla Sun Life Insurance Company Limited - Research Analyst

* Vidyadhar Ginde

ICICI Securities Limited, Research Division - Oil and Gas Analyst

* Vikash Kumar Jain

CLSA Limited, Research Division - Research Analyst

* Vinit Joshi

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Petronet LNG Limited Q2 FY'20 Results Conference Call hosted by BOB Capital Markets. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Ahuja from BOB Capital Markets. Thank you, and over to you, sir.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [2]

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Hi, everyone. On behalf of BOB Capital markets I welcome to this conference call. I thank the management for giving us opportunity to host this call. From Petronet Energy Management, we have Mr. V.K. Mishra, Director of Finance; Mr. Mukesh Gupta, VP and CGM Finance and Accounts; Mr. Vivek Mittal, GM Marketing; Mr. Debabrata Satpathy

DGM Finance and Accounts; and Mr. Ashwani Agarwal, Deputy Manager, Finance and Accounts.

I hand over the floor to Mr. Mishra for his opening remarks, and then we can start with the Q&A. Thank you, sir.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [3]

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Very good morning to everyone. First of all, I wish to -- wish everybody happy Diwali. And we are happy to announce that this time our performance has been very robust for the quarter ending on 30th September 2019. We have turned the highest ever throughput in our Dahej Terminal after expansion of capacity from 15 to 17.5 [mtpa], and we have been able to utilize capacity to the extent of 108% of the total capacity.

So total throughput has been 248 TBTU as against 217 TBTU in the last quarter and 211 TBTU in the corresponding quarter of the previous year. And if you look at the overall throughput, it has been 250 TBTU as against 226 TBTU in the previous quarter and 217 TBTU in the corresponding quarter.

So the utilization has been -- like earlier it has been higher and because of that we have been able to enhance our PBT also.

And our PBT has been INR 885 crore as against INR 38 crore in the previous quarter and INR 867 crore in the corresponding quarter. So there is a growth of 5.6% over the previous quarter and 2% over the corresponding quarter.

And if you look at the PAT, it has been excellent and it has not been because of our performance but because of the Government of India corporate tax rate policy, which has enhanced our PAT to unprecedented level. So it has been INR 1,103 crores as compared to INR 560 crore in the previous quarter and INR 563 crore in the corresponding quarter.

Thus there has been a growth of around 97% in -- from the previous quarter and 96% from the corresponding quarter. So as I have just mentioned, the basic reason for this surge has been the reduction in corporate tax rate from 30% to 22%. So the effective tax rate has come down from 34.94% to 25.17%, which is in fact the reduction of 9.78% from the earlier periods.

So because of that the total deferred tax liability has been reduced to the extent of INR 380 crores, which has impacted substantially in enhancing the PAT. If you look at this is very paradoxically presented because PAT is higher than PBT. It has never been a case when PAT is higher than PBT. So -- but this is because of, as mentioned, that this is because of reduction in corporate tax rate and also because of our enhancement in capacity and utilization to have levels of 108% Dahej Terminal. So overall, this is the result, which is there. Now I open up the house for the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Nilesh Ghuge from HDFC Securities.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [2]

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Yes, sir my question is regarding the Kochi-Mangalore pipeline. Sir, any update on Kochi-Mangalore pipeline?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [3]

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Kochi-Mangalore pipeline earlier [rail] Has given a commitment till December 2019. And I think it may be delayed by 1 or 2 months. So it may go up to February 2020. So we are also keeping our fingers crossed because now the results of rail is also due in few days from now. So they will declare exact time line for the completion of this project.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [4]

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Yes, right...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [5]

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With that only up to December 2019.

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [6]

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Okay. And sir, revenue [review]from third-party services for this quarter?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [7]

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Third-party?

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Nilesh Ghuge, HDFC Securities Limited, Research Division - Research Analyst [8]

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Yes, sir, from the services, total income.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [9]

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It's INR 171 crores.

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Operator [10]

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(Operator Instructions) Next question is from the line of Amit Rustagi from UBS Global Asset Management.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [11]

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My question relates to the inventory loss, which we had accounted for in the Q4. Is there any reversal of that loss during the current quarter? Because...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [12]

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So Amit, there has been no reversal on that because these -- as you know the spot prices are not moved since then, not moved much. But there seems to be a standard price. There is no reversal.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [13]

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And now for example, in the last month, October, there has been some reversal in the spot prices. So can we expect some reversal in the coming quarter?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [14]

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No. Depends on the market we need to be, but right now we did see some increase in the prices but off late in last one week or so they have again declined to 550 level. So in terms of an impact (inaudible) sorted with oversupply in the current market we don't see prices to be too much. So at this point of time, being conservative, we don't think that there will be any major reversal of that.

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Amit Rustagi, UBS Investment Bank, Research Division - Analyst [15]

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Okay. And sir, how much volume of Kochi has arrived at Dahej during the quarter? That's my last question.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [16]

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This is around 9.76 TBTU which has arrived in Dahej, which was pretty different from Kochi, which has something like 9.76 TBTU. So roughly 3 cargo differential.

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Operator [17]

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Next question is from the line of Nafeesa Gupta from Bank of America.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [18]

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My question is more on the volume side. Sir, in terms of the Y-o-Y numbers, there's an increment of about 0.7 MMT for Petronet. But as we see the numbers on the PPAC website for LNG imports in India, the number is only about 0.5 MMT, sir. So my question is, how do we reconcile this difference in the import for the country and the import for Petronet, the differential?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [19]

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Obviously, Petronet numbers are what they are. So we can't do anything about it. But yes, there might be difference a value of 6.7 as Dahej has increased, whereas PPAC has declined. So there might be impact on other terminals primarily.

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [20]

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But sir, that number on PPAC is countrywide, right?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [21]

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It's right. So that's what I'm saying. So one numbers are for our terminals, which is Dahej and Kochi. So -- whereas overall number you're saying has increased only by 0.5, our numbers have increased by 0.7 million tonnes. So it means the numbers for other terminals could have declined by a smaller quantum of 0.2 or so

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Nafeesa Gupta, BofA Merrill Lynch, Research Division - Research Analyst [22]

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Got it. Sir, any idea who could that be?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [23]

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That we will not be able to...

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Operator [24]

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Next question is from the line of S Ramesh from Nirmal Bang.

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S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst, [25]

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In terms of your operating performance, we see that the combined cost and your other expenses have come down. So how much of this softness in the operating expense is sustainable over the second half and next year? And what proportion of your expense is because of the shifting of the lease rental?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [26]

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Mr. Ramesh, if you see the other expenses, there is a impact of INR 72 crores of the lease restatement -- lease liability restatement. So the exchange rate has moved by, I mean INR 1.5 per dollar. That is why the losses has been booked there.

Now on the other expenses, yes, there has been questions that the other expenses, after taking out the INR 72 crores, looks to be little lower. The answer to that is, this was a monsoon quarter. It might have been that the normal repair where maintenance and operating expenses might not have been there in this quarter. So those would be coming in the next 2 quarters.

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S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst, [27]

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So how much is the foreign exchange loss in (inaudible)

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [28]

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It's INR 72 crores.

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S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst, [29]

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INR 72 crores is lease liability, right?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [30]

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Yes, due to the lease liability, the ForEx loss due to the lease liability restatement.

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S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst, [31]

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Okay. So but there is an exceptional item of INR 72 crores.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [32]

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Those 2 numbers match, but that exceptional item is regarding the Kochi Terminal lease rent which, I mean if you see our last financial statement, we had given a contingent liability of INR 103 crores. But because of certain issues we have been checking up with the Cochin Port Trust and certain litigations also going on. So we had proposed for a onetime settlement for 2010 to 2039, so -- and that has been accepted by the Cochin Port Trust and because that has been accepted so the prudent accounting policy says that from 2010 to 2019, whatever is the impact, that has to be now taken into the books of account, provided for in the books of accounts.

So that is INR 72 crores and that is where we're we showing as exceptional item.

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S Ramesh;Nirmal Bang Securities Pvt Ltd.;Analyst, [33]

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Okay. Just one final thought. In terms of your cash taxes for this half year. In the cash flow you have provided INR 447 crore, your half yearly tax is about INR 59 crores adjusted for the before tax. So in terms of the sustainable cash outflow for taxes for the second half, is it fair to assume that you can do it at just 25.2% from whatever PBT estimate?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [34]

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Yes, correct. That is a onetime adjustment. Next is -- from next time onwards, it will be 25.17%.

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Operator [35]

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The next question is from the line of from Avadhoot Sabnis from CGS-CIMB Securities.

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Avadhoot Sabnis, CIMB Research - Analyst [36]

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So firstly on the contribution there's -- from the JVs and associates, there's a sharp drop in the first 2 quarters this year relative to last year. Could you just expand on that?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [37]

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Avadhoot, could you repeat your question?

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Unidentified Company Representative, [38]

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Repeat your question.

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Avadhoot Sabnis, CIMB Research - Analyst [39]

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This relates to the -- on the consolidated numbers, the profit contribution from JVs and associates, there were very sharp drop in contributions in the first and second quarter of this year, for second quarter there's a loss, whereas there was a pretty robust contributions in the last 2 quarters of last year. Could you just expand around what's happened there in terms of the contribution from JVs?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [40]

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Yes, actually, there are 2 JVs, the one is Adani port and another one is ILT4, the shipping company. So in the shipping company, they have reported some loss in the first 2 quarters. Basically, for the half year they have shown some loss. Because they go in a calendar year manner. So -- I mean March and June quarter are combined. They have shown some loss. So that is where at the combined level -- and we have analyzed that also. That is because -- professional level, they have done profit. But because of the trade relation of their -- I mean cash hedges that they have taken, cash flow is that they have taken against their loan. They have reported some loss as per IFRS. So we don't see any concern right now there. And in the next coming 2 quarters, we'll keep a watch and keep you informed.

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Avadhoot Sabnis, CIMB Research - Analyst [41]

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So drop is purely on account of the cash flow hedges after they could speak...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [42]

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Yes, on account of accounting...

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Unidentified Company Representative, [43]

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Statement of the loan.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [44]

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Yes. And currency fluctuations with actual dollar and whatever loans they have taken. They have restated their loan, so that's why there is a loss.

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Avadhoot Sabnis, CIMB Research - Analyst [45]

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Do you have any idea, you think it will reverse in the next subsequent quarters?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [46]

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Yes, yes. As you know, in the lease we have also taken INR 72 crores loss (inaudible) Because we -- it depends on the ForEx fluctuations. However, your question is that whether those companies are performing or not. I mean what we have analyzed is that they are performing well. They have -- operational level, they are showing profit. But then it is a book loss now they have taken.

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Avadhoot Sabnis, CIMB Research - Analyst [47]

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Okay, and just on the lease part, sorry I'm a bit confused. Last year, for example, you had a ForEx item of roughly INR 100 crores. Which was like a contra item both in expenses and other income. What would be the similar number in the first half of this year?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [48]

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Yes, first to clarify everybody, actually let me put the numbers now. See the -- like last time, the gross margin level -- basically at the gross margin level the reversal of the lease rental -- the lease rental that we were taking previously now we are not taking because of Ind AS 114 is INR 114 crores. And below the gross margin level at the operational expenses level, there is another INR 8 crores of lease rental that we have not taken. So these are the 2 reversals that we are considering in 116. Plus, there is this depreciation of IRN 89 crores and interest expenses of INR 86 crores that has to be taken as per the 116 adjustment. And there is a INR 72 crores loss of restatement that we have already talked about. And in the last quarter, there was INR 11 crore gain on the restatement of the lease -- I mean the lease liability that has been written back in this quarter. So that is again as expenses item, that has been taken in the other expenses. So the net effect of all these amounts is INR 137 crores in the expense side of the before PBT, basically.

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Operator [49]

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Next question is from the line of Sujit Lodha from Birla Sun Life.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [50]

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Sir, I have 2 questions, first one Qatar renegotiations, are there -- first currently are we seeing any lower withdrawals of Qatar volumes?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [51]

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Right now, there is no indication that there is a lower withdrawal of volumes. But Qatar negotiation as we have listed yesterday also that we have discussed that we are looking forward to it but nothing has happened so far. We are looking at it. And certainly we'll talk to them as this gap of long term and short cut to continue for a longer time. It is going on. And so nothing can be commented on this right now.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [52]

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And sir, the renegotiation which you're talking about, is there any time lines? And will it also mean that we are talking about incremental volumes, incremental contract volume like we did in the last renegotiation?

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Unidentified Company Representative, [53]

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Still early.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [54]

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It is too early to answer this. However, we will certainly come to you again and explain everything in detail. But nothing has happened, so we cannot comment on it.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [55]

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Okay. Sir and second question, sir, is very -- just for the understanding. Sir, this 17.5 million tonnes which is the expanded capacity, sir, how do you look at the operational capacity? Is that also possible to get utilized at about 110%? So can we see if there is enough demand? Can we see a 19, 19.5 million tonne kind of volumes -- operational volume if there is enough demand on the 17.5 nameplate?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [56]

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We won't think just like that but, of course, it may increase because 108%, it has already done right now.

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Sujit Lodha, Aditya Birla Sun Life Insurance Company Limited - Research Analyst [57]

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So on a full year basis it can do 108% on 17.5 million tonnes.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [58]

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Yes, I think it is being done. So it will continue like this. If time is there, we will continue with this 110%, 108% of the utilization.

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Operator [59]

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Next question is from the line of Probal Sen from Centrum Broking Limited.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [60]

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I have 2 questions. One was, you had mentioned, I think, 3,700 and 3,800 CapEx on new storage tanks. I Just wanted to get an update of whether any investment has already been done? And whether it will be completed in this year, that was my first question.

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Unidentified Company Representative, [61]

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So we have not said that.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [62]

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Probal, new -- storage tanks actually what we had said that -- it will take -- it takes 3 years, not less than 3 years for any tank to rebuild. So it's in the tendering stage right now for those 2 assets. So our objective is to close -- complete this like be last month of FY '24, basically.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [63]

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FY '24?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [64]

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Yes, '23, '24, basically.

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Unidentified Company Representative, [65]

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Because it will take time to award the work than completion. And total cost will be around INR 1,300 crores.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [66]

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How much, sir?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [67]

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INR 1,300 crores, INR 1,300 crores.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [68]

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1,300. So effectively sir, over FY '21, '22 Dahej capacity will remain roughly at around 17.5 million tonnes or will it reach 19 million tonnes by FY'22.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [69]

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'22 it should be 17.5 million tonnes higher, '23, basically if all goes well, then we can talk about '23, later.

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [70]

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Okay. And sir, the second question, anything more if you can share on Tellurian in addition to what the MD said?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [71]

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Tellurian basically is a [then and again] we have been speaking with (inaudible) that this is a nonbinding MoU. And a lot of things have to be worked out to reach any agreement. So this is all going on and we are in the process of having some consultant to select a particular (inaudible) where we can think of for buying an LNG (inaudible) Nothing material has happened so far. But other thing is going on, it may take...

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Probal Sen, Centrum Broking Limited, Research Division - Analyst of Oil and Gas [72]

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And as -- sorry, sir, go ahead.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [73]

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Yes, and the capital commitment will remain in the range of around 0.5 billion to 1 billion roughly, not being 2.5 billion and that is something that you are maintaining, right?

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Unidentified Company Representative, [74]

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We have already said that it may be from 1 million to 5 million tonnes. So (foreign language) our promoter are also with us and we can think of 5 million tonnes. Otherwise, we're on our own we will not go beyond [1 million tonnes] to 2 million tonnes, so that is like 500 million to 1 billion.

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Operator [75]

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(Operator Instructions) Next question is from the line of Saurabh Handa from Citigroup.

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Saurabh Handa, Citigroup Inc, Research Division - Director [76]

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Firstly, if we look at second half of last year, we obviously saw a dip in utilization, like as primarily -- partly other terminals being online, partly demand. So did you see something similar in the second half of this year over the next couple of quarters? And do you think like 100% sort of Dahej capacity utilization is doable for the second half?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [77]

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It all depends on how the demand trends are. Obviously, Indian demand has been growing consistently at the rate of 6% to 7%. So keeping that in mind, we are hopeful that our terminal will get utilized to the maximum capacity. Commenting whether 100% or not would be difficult for me to answer at this point of time. But obviously there is impact probably that level has started now, so those impacts will obviously -- so next quarter, I'm not sure whether we'll be able to achieve this kind of performance. But on optimistic level, with the growth in Indian market, yes we're hopeful that we should achieve the maximum and obviously Dahej has been the flagship terminal in country for its factors to 20% (inaudible). So we expect that momentum to continue as well.

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Saurabh Handa, Citigroup Inc, Research Division - Director [78]

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Sir, is there any update on the other terminals like Mundra or the (inaudible) and when they are planning to start?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [79]

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We don't like to relate or speculate on that.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [80]

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We are not aware of that.

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Saurabh Handa, Citigroup Inc, Research Division - Director [81]

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Okay. Fair enough. Sir, just the other question on the storage tanks, you said it will take 3 years. So if you award the contract by end of this financial year, it should be 4Q of fiscal '23, right? Or '24?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [82]

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Yes. I think from the 0 date after awarding we can think of 3 years from that time.

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Saurabh Handa, Citigroup Inc, Research Division - Director [83]

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So that means it should be by fourth quarter of financial year '23 because I thought you said '24?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [84]

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Yes, I think it should be like this.

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Saurabh Handa, Citigroup Inc, Research Division - Director [85]

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Okay. Sir. And just the last question on the tolling volumes. Is there any update on entering into a new long-term contract? You have been, I think talking to a couple of your offtakers. Is there any progress on that?

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [86]

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So there are discussions going on. This quarter also there have been some other than our regular obstacles, I mean some third parties. But there's some year-on-year contract rather than a long-term contract. So that arrangement we are still discussing but as of now, long-term off discussions are ongoing but nothing concretized or nothing has been finalized.

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Operator [87]

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Next question is from the line of Bhavin Gandhi from B&K Securities.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [88]

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Just sir, on the cash flow statement it seems that in the first half you've just done about [INR 1,100 crores]. So the CapEx guidance for the year remained at INR 650 crores?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [89]

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CapEx is around INR 450 crores for the year.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [90]

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INR 450 crores for the year?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [91]

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Yes.

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Bhavin Gandhi, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [92]

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Okay. And sir, just a bookkeeping question, if you can tell me the Qatar and Gorgon delivered price in the quarter?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [93]

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Around $9.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [94]

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Both of them have been in the range of $8 to $9 from this independent.

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Operator [95]

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Next question is from the line of Mayank Maheshwari from Morgan Stanley.

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Mayank Maheshwari, Morgan Stanley, Research Division - Research Analyst [96]

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Sir, just one question in terms of demand. Obviously, you had seen good utilization rates for this quarter on Dahej. Can you just give us an idea of what has been the key sector that has been helping demand and your outlook on those?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [97]

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See, if you look at PPAC results, both in -- the 2 sectors where in the -- at room number of PPAC sitting here for the 7 mmcmd in July, August it was 14 mmcmd. Similarly, power there has been speculation PPAC reflected some numbers in June which were not sustained but our understanding is they were similar. So I would like to say that PPAC numbers were right or wrong. And others also if you see 7 mmcmd has increased to 10 mmcmd. So I think others and (inaudible) they were 2 major sectors which have contributed and power maybe one of them because in June power numbers PPAC showed was 23, whereas in July, August they showed 10 online mmcmd, so which we don't believe is the right way because trend-wise, April was 9, May was 11, all of a sudden June it was 23 and then 10 and 9 again.

But power obviously because of the low spot prices we did see some of power plants in Gujarat which we started and which we still believe they're continuing. So that -- probably sectors also contributed to growth in the demand.

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Operator [98]

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Next question is from the line of Vidyadhar Ginde from ICICI Securities.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [99]

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One clarification for -- so on the tax thing, are you saying that second half it will be 25.17% current plus deferred and so the full year this year will be less than 25.17% and next year should we take it at 25.17%?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [100]

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Yes, good question. So the deferred tax liability has impacted severely this time tax...

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [101]

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So for the full year, the number will be lower than 25%, significantly lower.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [102]

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Because of that deferred tax liability impact of INR 380 crores.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [103]

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Yes, yes, sure. And the second question was on Tellurian. If and when you go ahead with it, what proportion of the Tellurian LNG may get sold to power sector?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [104]

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No, it's premature question. I don't want to actually kind of...

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [105]

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Sir, where I'm coming from is that are you opposed to selling that LNG to power? Because LNG -- the power has been...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [106]

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Our objective is to bring gas to India at a very affordable price, reasonable price. So that even power, that we can use it. Our target is less than $6 per mmBtu of LNG. That kind of pricing can be achieved. So certainly power sector will also be comfortable in using that kind of strategy. But I cannot assure you that will be done. That depends upon so many factors.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [107]

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Sir, where I'm coming from is that the benefit of sourcing spot LNG gets, sort of, nullified from a profit trading margin perspective if you sell it to power, if you sell it to nonpower then you will make a much bigger profit.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [108]

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No, it's not a question of making profit. What we are trying to say is to enhance the consumption of LNG in India. And then right now we are not getting any margin on sale of our LNG to the operators. So our objective is to enhance the consumption of LNG in India. So the number of core businesses the regas of the natural gas. So that should also be promoted, by the way. So we are not afraid if we are not getting anything out of it. What we want actually it should be sustainable for the power plants and other sectors so that it can be enhanced. And thus Government of India objective can be achieved of 15% share in the NSE bucket which presented only [62%]. So not only me, it's the Government of India which is driving the entire contract.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [109]

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Okay. Sir, last question on this. So mainly if you go ahead with this investment then what is the likely that equity investment in this group? Will there be debt?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [110]

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No, no, no, right now, we are not thinking in those terms because we have to finalize all those things. It will be only in terms of equity from whole.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [111]

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Okay, you won't -- it will fund the whole $0.5 billion to $1 billion by the way of (inaudible).

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [112]

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That's hopefully on equity.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [113]

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Okay. You will not -- you don't plan to take any debt to fund, right?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [114]

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That is their role, they have to take. We don't have do. We have to continue to only equity.

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Vidyadhar Ginde, ICICI Securities Limited, Research Division - Oil and Gas Analyst [115]

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Okay. Sir, no, I'm saying how you find your equity. So let's say you put a $1 billion in the project, you can either put -- or will you fund it by...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [116]

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Right now, we have one -- 500 million to 1 billion, we can finance through our balance sheet also. But this has not been decided so far. We cannot comment right now how much we will take from outside and how much will be fund from balance sheet.

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Operator [117]

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Next question is from the line of Aditya Suresh from Macquarie Capital.

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [118]

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Just one question, sir. How should we think about your dividend policy going forward, please?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [119]

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Dividend policy, we have already said that it's 30% of PAT or 5% of net worth, whichever is higher.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [120]

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And we have already published our policy...

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [121]

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Policy is there on the balance sheet also. If you look at it, it is available in our published balance sheet -- printed balance sheet of last year. So there is no issues on the policy end, but we are paying dividend this time even more important we have paid 55% dividend, interim dividend, which is a special interim dividend. And I think last year trend has been followed. Yes.

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Aditya Suresh, Macquarie Research - Head of HK & China Oil & Gas and Oil & Gas Research Analyst [122]

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I guess a question is also more just about your January information of organic cash from operations in the exact (inaudible) months. So I guess as a shareholder, you think we can see more of that as dividend?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [123]

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No, right now, whatever CapEx is there we are keeping provision for that. And still there is availability of cash, so we are distributing dividend. But if there's a project in future, certainly we will not distribute so much of dividend and will try to invest that money in new projects. So we are looking forward to the projects in future, and we are working on many of them. Let us see which one matures.

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Operator [124]

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Next question is from the line of Vikash Jain from CLSA.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [125]

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Yes, I had just one question, this is regarding the corporate rate cut. So sir may utility companies will see their status adjusted because of the big tax rate cut. So is there something like that which could happen to the regas status of Petronet as well? If you could just give some sense for that?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [126]

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We have not even thought of it, but let us see what happens because it is too premature to say anything. We cannot think of a thing like this. We are hoping that it should not happen.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [127]

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Vikash, one more thing here, if you see our tariffs are much lower than others if you talk of Dahej. And none of the offtakers have asked for reduction as well.

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Vikash Kumar Jain, CLSA Limited, Research Division - Research Analyst [128]

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Okay. No, sir, where I come from is that of course there was some kind of an ROE or an IRR kept in mind when tariffs were decided same with Kochi as well as Dahej. So since -- something similar, for example, is in case of gas transmission pipelines where there is a clear possibility that tariffs will be adjusted downwards because that IRR takes into account the particular tax rate and this one is a pretty deep downward adjustment in tax rate, that's why I'm asking this question. But at this point of time there is no discussion is what you asked for?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [129]

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To answer this question, we have not decided to affirm anything on this.

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Operator [130]

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Next question is from the line of Vinit Joshi from Goldman Sachs.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [131]

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My first question is can you just provide us the regas service income for 1Q and 2Q...

(technical difficulty)

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Operator [132]

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Mr. Joshi, the line for the management has disconnected. We'll join them by, please continue with your question. And just a moment.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [133]

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Sure.

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Operator [134]

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Ladies and gentlemen, thank you for your patience. We have the management line connected. Mr. Joshi please go ahead with your question.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [135]

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Sure. Sir, my first question is can you provide the service income for both 1Q and 2Q and what is the current tariff at Kochi and Dahej?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [136]

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The service income for 2Q is INR 631 crores and then it was INR 552 crores.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [137]

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Okay. And current tariff at Kochi and Dahej?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [138]

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Current tariff at Kochi is INR 104.5 crores and at Dahej it is INR 49.7 crores.

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [139]

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Sure. My second question is can you provide some color in terms of demand trends that you had seen in October?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [140]

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So demand obviously becomes seasonal subscription depending on the power demand. But other than that, normal demand is continuing. The only thing as I mentioned previously the above terminal has started, so that impacts obviously is there every quarter, every year in this October to December quarter we do see that interest. So that is best [ERP in '17].

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Vinit Joshi, Goldman Sachs Group Inc., Research Division - Equity Analyst [141]

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But in terms of the percentage growth that we're seeing, that should continue for an overall demand perspective?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [142]

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That's what we do.

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Operator [143]

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Next question is from the line of [Swathi Madha] from [Comgest].

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Unidentified Analyst, [144]

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Just one clarification with Tellurian because they say that you will have to come to a conclusion by March of next year. So if you've not yet appointed a consultant, isn't it cutting it too tight to come to a decision by March 2020?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [145]

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Yes, you are very right. It is March -- [21st March 2020]. But currently this is a nonbinding agreement and basically such kind of things are capped because they also have some commitment as far as the FID is concerned for that project. So naturally, they are more desperate on that. Though we are not so desperate, but of course, we are trying to finalize it by [31st March 2020]. And as far as the appointment of consultant is concerned, we are in the process and very shortly it will be awarded. So we are hopeful that it will be completed by that time. But even if it is not completed, we have expectation that may be extended up to June 2020.

So I don't foresee any commitment sort of that it is to be done by that day. If there is some problem, then we can extend it to further 2, 3 months. But of course this is a deadline so that we can finalize everything whatever way we want. We have to know whatever is there after making -- study and that's the analysis of the entire project. We have to come to a conclusion what decision we have to make. So for that -- from that point of view, I think this was capped, and we are hoping that we will complete by 31st March 2020 .

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Unidentified Analyst, [146]

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Yes, okay. Any update on Bangladesh and Sri Lanka?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [147]

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Bangladesh, again they are going for tendering process, so it's a open thing. Let us see who wins the bid. So far, they have not asked to submit the bid. But the Sri Lanka part, we are in discussion and we are trying to get it -- let us see what happens but both are still open. We cannot say that it has been in our favor or not. So let us see. Yes...

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Unidentified Analyst, [148]

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Sorry, for Sri Lanka, my understanding was it's a [dunk] in and seems steady for going down and the next step for that is finalizing?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [149]

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See, that study is going on. But still that finalization of providing the contract to us has not been done. So we are in touch with the Government of Sri Lanka and are trying to expedite it so that we can get it.

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Operator [150]

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Next question is from the line of Rakesh Sethia from HSBC.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [151]

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So just one question on the tariff mechanism, which we have for Bangladesh funding the -- specifically talking about the 5% escalation. Could you remind us to decide the 5% escalation is the tax rate component in that framework? And if I were to extend the logic to, let's say, the -- another agreement which you had for -- not only on the agreements projection rate capacity, do we have a tax rate as a mechanism, as an escalation -- to decide the escalation factor for the tariffs?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [152]

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So the escalation factor is independent of the tax rate, I would say because of the -- when the tariff output, the option was whether to have a one single tariff throughout the period or a base tariff at a lower number with the escalation of 5%. So to that extent I don't think so there is any element of taxation in the 5% escalation.

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Rakesh Sethia, HSBC, Research Division - Analyst of Indian Oil & Gas Sector [153]

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So when I try to say -- based on the existing contractual terms, there is no, let's say, a mechanism through which any customer can call for review of the tariff just because the tax rates have gone down?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [154]

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Not for tax provision but for other reasons there have certain review provisions but those are not figured.

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Operator [155]

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Next question is from the line of Avadhoot Sabnis from CGS-CIMB.

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Avadhoot Sabnis, CIMB Research - Analyst [156]

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Sir, could you comment on the status of renegotiation of Kochi tariff, is that likely this year?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [157]

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No, no. We have earlier also informed you that a negotiation is going on but some settlement has to be reached. But in fact, we have made a provision to the extent of INR 40 crores in the last quarter and the current quarter as well. Because we are expecting that there will be a downward revision in the tariff and it may go up to INR 79 per mmBtu. So -- but they have not agreed to it. So settlement has to be reached. Till then we are making a provision to that extent. So let us see. Hopefully in the next quarter, it should be clear how much tariff is fixed for Kochi. There's certain issue of utilization. It's not we are against downward revision but only thing is utilization is very poor. So we are seeking some sort of commitment from their side so that at least in future we can hope that cash flow will be there for that Kochi plant and the impairment of that plant will be avoided because of shortfall of the quantity volumes in that terminal.

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Avadhoot Sabnis, CIMB Research - Analyst [158]

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So basically INR 104 tariff minus INR 79 into volumes is INR 40 crores per quarter?

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [159]

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INR 40 crores per quarter.

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Operator [160]

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Thank you very much. Ladies and gentlemen, due to time constraint that was the last question for today. I'll now hand the conference over to Mr. Rohit Ahuja for closing comments.

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Rohit Ahuja, BOB Capital Markets Limited, Research Division - Analyst [161]

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Thanks for attending the call and a special thanks to the management for giving us opportunity to host a call and answering all the questions for you. Thank you, sir.

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Prabhat Kumar Singh, Petronet LNG Limited - MD, CEO & Whole-time Director [162]

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Thank you very much.

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Vinod Kumar Mishra, Petronet LNG Limited - CFO, Director of Finance & Director [163]

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Thank you.

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Operator [164]

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Thank you very much. On behalf of BOB Capital Markets, that concludes this conference. Thank you for joining us. You may now disconnect your lines.