GSPL Transmission expects GIGL break-even in about two years

GSPL Transmission said on its investor call that GIGL could reach break-even in about two years as customer volumes build, while Rs 100 crore to Rs 110 crore of GIGL capital expenditure remains under execution and is expected to be revenue-accretive from day one.

When does GSPL Transmission expect GIGL to break even?

GSPL Transmission expects GIGL to reach break-even in another couple of years, subject to new industries and customer gas demand increasing on the network. Management gave the timeframe when asked about GIGL profitability and said the business had been making incremental progress, rather than suggesting an immediate turnaround.

The stated timing reflects the development cycle for a large gas-transmission asset. GSPL Transmission said industries and large customers take time to come up along a pipeline corridor, and that the customer contracts currently in place are not sufficient for GIGL to reach break-even. Management did not provide a percentage of GIGL capacity that is contracted.

Why is GIGL still below break-even?

GIGL is below break-even principally because customer volumes have not yet reached the required level, GSPL Transmission said. Management described the subsidiary businesses as operating under fixed tariffs, where revenue depends on contracted capacity and contractual terms rather than ownership of the gas being transported.

GSPL Transmission has changed its volume disclosure to report contractual volumes that contribute to revenue rather than only physical gas molecules transported. Management illustrated the mechanism with a 5 million metric standard cubic metres per day, or MMSCMD, contract carrying an 80% take-or-pay commitment: if physical transmission were 3 MMSCMD, the reported contractual volume would be 4 MMSCMD, not 5 MMSCMD.

Reported revenue and volumes may therefore not move in exact proportion between periods. In response to an analyst who cited revenue growth of about 13% to 18% alongside substantially faster volume growth, management said ship-or-pay revenue could create a mismatch with the previous quarter. GSPL Transmission did not disclose GIGL's current loss, revenue or utilisation rate on the call.

What could increase GIGL volumes over the next two years?

GSPL Transmission expects new industrial projects and expanding city gas distribution, or CGD, networks along GIGL's route to raise gas demand gradually. Management said new projects were scaling up and that their requirement for gas should increase as operations expand, providing the volume-led basis for its roughly two-year break-even view.

An analyst referred to refinery-related demand and completed connectivity to HMEL, and management replied that new projects were being scaled up gradually. GSPL Transmission also said CGD development along the network could propel volumes. The company did not identify the individual GIGL customers, their contracted volumes or their expected commissioning dates.

The proposed Anjar-Palanpur pipeline is another planned source of volume for both GIGL and GSPL Transmission networks. Management said the project is intended to carry additional gas from the Mundra liquefied natural gas, or LNG, terminal, and forms part of a wider Rs 3,500 crore capital-expenditure programme.

Is GIGL's remaining capital expenditure sufficient for its network?

GSPL Transmission said GIGL is almost finished with its required build-out, with Rs 100 crore to Rs 110 crore of capital expenditure still under execution. Management said this residual work would be revenue-accretive from day one and that it did not foresee major additional GIGL capital requirements in the near term.

When asked whether the remaining Rs 100 crore to Rs 110 crore would connect major customers on the route, management answered yes. It said that after this work, the principal issue would be customers ramping up gas volumes, rather than a shortage of pipeline infrastructure. GSPL Transmission said it would provide customer-specific details later rather than disclose them on the call.

The scale of the capacity gap was not quantified for GIGL alone. GSPL Transmission put combined transmission capacity of GIGL and GITL at about 44 MMSCMD to 45 MMSCMD, but did not split that figure by subsidiary. It also did not state the volume needed for GIGL to cover its fixed costs.

How does GITL compare with GIGL?

GITL is profitable on a standalone basis, while GIGL is the subsidiary for which GSPL Transmission provided a roughly two-year break-even expectation. That distinction clarifies management's position after an investor referred to both subsidiaries as loss-making: the stated turnaround timetable applies to GIGL, not GITL.

GSPL Transmission said GITL has not made major additional investments because of gas-sourcing issues associated with the Krishna-Godavari, or KG, Basin. Management said it had protected capital by avoiding investment before customer demand was visible, while continuing to engage with the Petroleum and Natural Gas Regulatory Board, or PNGRB, on the situation.

GITL has not incurred PNGRB penalties thus far for investment not made, GSPL Transmission said. GIGL has also not faced penalties for missing volume projections, according to management, which said all customer requirements arising on its network were being served. Those comments address compliance and customer service, but do not alter the need for additional volume to reach GIGL break-even.

Conclusion

GSPL Transmission has set out a volume-led path for GIGL rather than a near-term financial turnaround. The company expects break-even in about two years, with the last Rs 100 crore to Rs 110 crore of GIGL capital expenditure intended to complete customer connectivity and generate revenue from the first day of operation.

The next disclosed milestones are completion of the residual GIGL work and the wider Rs 3,500 crore programme, of which management expects about Rs 3,000 crore to be completed by March 2028. Investors will also need to watch whether industrial and CGD demand ramps as management expects, and whether Anjar-Palanpur enables additional Mundra LNG volumes for GIGL and GSPL Transmission.