Confidence Petro Management Discussions


Industry Structure and Developments & Global Economy

Global Energy Sector: India is third largest energy-consuming country in the world. The ever- expanding industrialization and urbanization will primarily drive the energy demand. Energy markets began to tighten in 2021 due to extraordinary rapid economic rebound following the pandemic which further escalated into a full-blown global energy crisis following Russias invasion of Ukraine in February 2022. The geopolitical conflict in Europe, along with other factors, stirred up uncertainties around energy supply, price volatility and triggered significant peaks in energy prices. Driven by the geopolitical conflict the Gas prices continued to rise during the early part of 2022 and this uncertainty pushed European prices to record new highs. All the gas indices such as JKM, TTF, HH, have witnessed price volatility during 2022 with prices softening during the last quarter of FY-2023. The global energy crisis triggered by geopolitical conflict in Europe has caused profound and long-lasting changes.

The events in energy sector of the past have set a reminder for the stakeholders that all the three components of a balanced energy equation i.e. security, affordability and sustainability need to be taken into account for energy transition. The recent discussions on global energy policies focused on the significance of de-carbonization and the transition towards net zero goals. The success of an enduring energy transition shall only address all the above elements.

To tackle climate change, Post COP-26 (Conference of the Parties), various Governments across the globe are working with focus on implementing various low-carbon energy systems like renewable energy, electric vehicles, blue and green hydrogen projects, Carbon Capture Utilization & Storage (CCUS) etc. As per BP outlook on World Energy 2023, the future of global energy will be dominated by four major trends: declining role for hydrocarbons, rapid expansion in renewable energy, increasing electrification, and growing use of low-carbon hydrogen.

The Renewable energy will expand rapidly offsetting the declining role of fossil fuels. Natural Gas being the cleanest fuel will continue to play an important role in energy transition acting as the bridging fuel. Natural Gas can meet the growing demand of clean, affordable energy with limited deployment of capital and significant impact on emissions.

Global Gas Sector: The last year has been a challenging phase for the global Natural Gas market. Russias invasion of Ukraine triggered the first truly global gas crisis, with natural gas and LNG markets challenged with supply disruptions and unprecedented price volatility. The immediate effects of last years supply shock could be eased in recent months. The gas crisis sparked by Russias invasion of Ukraine has transformed the structure of natural gas markets.

The global Gas crisis triggered an unprecedented supply pressure and the security of gas supplies remained at the forefront with growing complexity for both short term and the long term. LNG has become a base load source of supply for Europe, with its share in total EU demand rising close to 35% in 2022 - similar to the contribution from Russias piped gas before the invasion of Ukraine. In light of phase-out of Russian piped gas exports to the European Union, to address the dynamics, development of new procurement mechanisms and cooperative frameworks have been explored, favoring a more flexible supply of LNG.

Global Natural Gas prices remained very volatile in FY-2022-23 and have seen great rise and falls. The market volatility was strong in the first half mainly driven by the dynamics in the European markets. As per the latest World Bank report, the European gas price now has fallen to more than 70% after reaching an all-time high in August 2022 and in the United States, the prices have dropped to an 18- month low, a stark turnaround from last year. Unseasonably warm weather, improved energy efficiency, and behavioral changes in gas consumption were the main contributors for the decline.

The Natural Gas crisis caused last year has led to several market adjustments. The LNG trade took a directional shift. EU demand for LNG surged to replace the Russian pipeline imports. Global LNG trade was redirected to Europe. The increased LNG procurement by Europe led to market tightening and demand destruction in various importing nations especially the developing Asian countries. This event has impacted the LNG contracting behaviors with comeback of longer-duration contracts.

The geopolitical conflicts in Ukraine, reduction of gas supplies to European Union countries and disruption of the Nord Stream pipeline have led to a dramatic reduction in Russian pipeline gas exports. EU already working on plans to reduce its dependency on Russian gas and in such scenario the resumption of gas supply between Russia and key European importers seems highly unlikely. However, Russia will like to play a crucial role in global gas markets. Under the prevailing market dynamics, Russia will aim to increase gas sales to non-European countries through various options such as - increase gas sales through pipeline to Asia (Power Siberia 1 & 2), increase Liquefied Natural Gas (LNG) exports, increase domestic use and export through intermediaries (Turkey). As per IEA Gas Market Report Q2-2023, Global gas demand is expected to remain flat in 2023, with higher demand coming from Asia Pacific region. The Asian gas demand is projected to increase by 3%, with China and India as the main driver.

LPG Industry

Liquefied Petroleum Gas (LPG) is a mixture of flammable hydrocarbons Propane and Butane that are liquefied through pressurization and commonly used as fuel. It is produced during natural gas processing or refining and liquefied through pressurization and stored in pressure vessels. Over 90% of LPG demand in India comes from domestic consumers, the consistent hike in excise duty of automotive fuels such as diesel and petrol has made commercial LPG a favorable option for automotive segment as well. The liquefied petroleum gas (LPG) market is expected to grow at a CAGR of over 3.5% by FY-2027.

The recent global developments have immensely disrupted the energy landscape. It shaped more distinct & persistent energy normal. The pandemic, the Soviet-Ukraine War and the realization to move towards carbon-free world have trembled energy world. While the move towards clean energy solutions accelerated amidst growing concerns on climate change, the economies are increasingly realizing that in the absence of widespread global infrastructure, standards, usage choices and fiscal incentives, green energy still has a long way to go in its struggle to overtake the currently predominant LPG.

SEGMENTWISE REVIEW

LPG Bulk Marketing

Your company witnessed disruption in LPG supplies during the first two quarters of the year due to ongoing Russia-Ukraine conflict, prompting your company to re-evaluate its supply chain strategies. The company secured its LPG Bulk demand through direct import from Middle East countries. This import was made possible through our close associate and supplier, establishing a strategic partnership. This sudden shift in the supply chain led to storage problem. To tackle the storage issue the company procured five hundred (500) LPG tankers, which besides transportation of LPG enhanced the storage capacity. This resulted in significant investment in logistic infrastructure. Your company adopted a proactive approach in managing supply chain uncertainties by hiring temporary storage facilities at ports too. In addition, your company also hired two ships through suppliers/associates to secure its supplies, demonstrating commitment to ensuring a reliable flow of LPG. The shift in the supply chain not only secured supplies to existing Auto LPG and Packed LPG Business of the company but has also opened opportunities of Bulk LPG supply to industrial consumers. This diversification has led to new revenue streams for your company.

Outlook: The Company is targeting to supply LPG to industrial users by untapping the industrial market, which erstwhile were using other fuels.

2. AUTO LPG SEGMENT

The company currently owns and commenced commercial operations at Two hundred forty eight (248) Auto LPG Dispensing Stations. In the private sector the company under the brand name ‘GOGAS is emerging as the largest & fastest player in the Auto LPG segment. The Auto LPG Dispensing Stations of the company are licensed by the Department of Petroleum And Explosives Safety Organization (PESO). The Auto LPG Dispensing Stations of the company are located at various strategic locations in different States of the country, to say in the States of

Karnataka, Tamil Nadu, Telangana, Andhra Pradesh, Maharashtra, Rajasthan, Madhya Pradesh and West Bengal.

The increased prices of Diesel & Petrol prompted large number of passenger vehicles shift to alternate

fuel - Auto LPG. Auto LPG besides being economic is environmental friendly too. The Capex for setting up an Auto LPG Dispensing Station is lower and does not require highly specialized vehicles or pipelines. Ample availability of domestic and import terminals make Auto LPG an attractive alternative fuel to petrol & diesel.

Outlook: As auto LPG is cost effective, environmental friendly clean green fuel the Company is targeting to establish 500+ stations by March 2025. Company is also targeting for LPG Kit Retrofit to switch the Petrol and diesel driven vehicles to alternate LPG fuel to enhance LPG sales.

3. LPG RETAIL SEGMENT/ PACKED LPG SEGEMENT

The Company has piloted introduction of 425 kg LOT cylinders for industrial and commercial applications. The 425 kg LPG Cylinders being high in volume prevent frequent changing of cylinder so also the time involved therein to the industrial consumer. The 425 kg LPG Cylinder is thus industrial friendly and is receiving great response from the industrial and commercial customers.

The Company undertakes retail marketing of Packed LPG Cylinders in LPG Retail /Packed LPG Segment under the brand name ‘GoGas and ‘GoGas elite in different sizes ranging from 2 kg, 12kg, 15kg, 17kg, 21kg and 33 kg. The LPG Retail /Packed LPG Segment of the company caters the large demand of non-subsidized LPG Cylinders to Hotels/ restaurants/ cafes (HORECA) and other industries.

The Companys management is consistently working on promotion and marketing resulting in improving the dealer network leading to increased sales and further growth in this segment. Further the Packed LPG Division of the company embarked on a transformational growth phase by introduction of three new high-potential growth segments, D2C, ‘ChotaBunty and 425 kg LPG Cylinder. Direct to Customer (D2C) within the Packed LPG Division, is a specialized model to cater directly to Hotels, Restaurants and Cafeteria customers. The current fiscal witnessed robust growth in ‘GoGas Dealer network. The introduction of ‘ChotaBunty LPG Cylinders (2kg and 4kg) is providing affordable LPG solutions to street vendors and modest food establishments. Introduction of 425 kg Cylinder, being industrial friendly, witnessed burgeoning demand from industrial sector.

Outlook: In India the Packed LPG market is very large. The company having every infrastructure such as cylinder manufacturing plants, bottling plants, tankers, mini trucks, trucks, dealer network etc. The company is targeting to expand this segment by tapping new dealers as well as through direct models. The company has a target of achieving monthly sales volume of 25,000 MT by F.Y. 2025 in packed LPG Division.

4. BOTTLING DIVISION

The company currently owns and is operating Sixty six (66) LPG Bottling Plants at strategic locations in different states across the country.

The company is the largest LPG bottler in the private sector with PAN India presence. The Company besides sub-serving the National Public Sector Oil Companies - Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited & Indian Oil Corporation Limited by providing LPG Bottling assistance, is also providing LPG bottling assistance to reputed major oil giants like Reliance alongwith bottling of its own brand GoGas (LPG Retail Segment). The company is concentrating and giving more focus on bottling of its own brand GoGas as the sales in retail segment is expected to multiply in future. The company under its expansion plan ayes to commission around 75+ LPG Bottling Plants at various strategic locations of the country. The storage infrastructure at these bottling plants will also enable the Companys hub and spoke model for distribution of other segments like Auto LPG, bulk LPG in an efficient and cost effective manner.

Outlook: As company is in retail LPG business as well as in bulk LPG marketing business, planning to increase the bottling plants from the existing sixty six (66) to seventy five (75) for timely storage and refilling of LPG.

5. CYLINDER DIVISION

The LPG Cylinder manufacturing segment of the Company is one of the largest private sector players in India. The companys LPG Cylinder manufacturing units are strategically located in different states of the country to serve its customers. First mover advantage and strong track record resulted in developing outstanding customer base and strong brand image. The companys LPG cylinder manufacturing plants are well equipped with ‘state of the art infrastructure and capabilities to provide a complete range of LPG cylinders primarily to National PSU Oil Companies - Hindustan Petroleum Corporation Limited, Bharat Petroleum Corporation Limited &

Indian Oil Corporation Limited so also to other reputed private players like Reliance. In view of PAN India presence the companys LPG cylinder division enjoys good logistic advantage.

Outlook: With the launch of Ujwalla 2.0 scheme by our Honble Prime Minister, aiming to provide around One crore free LPG connections to low-income families, the company anticipates orders of good quantum.

6. CNG RETAILING

The Company under its CNG retailing business has entered into Master Agreement with Gail Gas India Limited (GAIL) for setting up One Hundred (100) CNG Stations in the city of Bangalore. Of the One Hundred (100) CNG Stations the company has already set-up Thirty two (32) CNG Stations and commenced commercial sale. The work on remaining CNG stations is in full swing and will be completed within the time frame. The CNG stations will provide the company with long term, attractive and sustainable margins. The company is in discussion with many more City Gas Distribution (CGD) players for tie-up, to enter into agreement with them for other areas/regions. The company targets to complete the One Hundred (100) CNG Stations of GAIL by March, 2025. The company is also in talks with other CGD players for putting CNG stations in other cities. With the announcement of Government for setting-up Ten thousand (10000) CNG stations PAN India, company foresees bright future in the CNG segment.

Outlook: The announcement of setting-up 10000 CNG stations by the Government and the allocations thereof already being granted to various CGD players for setting up CNG stations in different areas, the company anticipates good business in CNG with long term yield and sustainable profits.

THREATS

Within the CNG business the Company foresees no major threat. The Company foresees little threat only from the Electrical Vehicles (EVs) in the coming next seven to ten years. However, looking to the complexities of lower disposable income, larger geographical bottlenecks of the country, investment involved, and infrastructure required for charging and maintenance, EVs will not be a success and/or the time frame of seven to ten years may extend even further.

The impact of future waves of Corona virus of varying degrees of severity and consequent lockdowns, if any, as well as the decline in the economic activity may result in uncertainty on volumes, margins and earnings.

CORPORATE SOCIAL RESPONSIBILITY

The Company firmly believes in the well-being of communities and the society through environmental and social measures and accordingly fulfilling its Corporate Social Responsibility. To better the environment the Company has undertook Tree Plantation Programmes at most of its LPG Bottling Plants and Auto LPG Dispensing Stations. The company has extreme concern towards literacy and quality education and is helping people of all ages irrespective of their religion, caste, race, color, gender without any discrimination of any kind. The Company under CSR activity during the financial year contributed Rs. 31 Lakhs SGR Knowledge Foundation, Rs.1.25 crores to Jan Jagrati Sevarth Sansthan, thus contributed a total of Rs. 1.56 crores under Corporate Social Responsibility.