Mahanagar Gas Limited (MGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mahanagar Gas Limited Q4 FY '20 Post Results Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vivekanand of AMBIT Capital. Thank you. And over to you, sir.

Thank you, Ayesha. Good evening, everyone. On behalf of AMBIT Capital, I welcome all the participants to this conference call today. We have with us the senior leadership team of Mahanagar Gas Limited: Mr. Sanjib Datta, Managing Director; Mr. Deepak Sawant, Deputy Managing Director; Mr. S. M. Ranade, Chief Financial Officer; and Mr. Rajesh Wagle, SVP, Marketing. We'll start with a brief overview of the company's performance for 4Q FY '20. And then we can switch over to a Q&A session. But before we begin the procedure, I hand it over to Jill for the disclaimer. Thank you.

Thank you, Vivekanand. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature, and we believe that expectations contained in the statements are reasonable. However, the nature involves a number of risks and uncertainties that may lead to different results. The risks and uncertainties relating to the statements include, but are not limited to the risks and uncertainties regarding fluctuations in sales volume, fluctuations in foreign exchange and other costs and our ability to manage growth. I urge you to consider that the quarterly numbers are not a reflection of long-term trends or the indication of full-year results. They should not be attempted to be extrapolated or interpolated into future numbers. Over to you, sir.

Thank you. Thank you, and good afternoon to all of you, and welcome to the earnings conference call of Mahanagar Gas Limited for the fourth quarter of the financial year 2019/20. I would like to thank all of you who are connected for our earnings call today. As you are aware, in March 2020, the World Health Organization characterized the outbreak of a strain of the new coronavirus, COVID-19, as a pandemic. This outbreak is causing significant disturbances and slowdown of economic activity. Due to the nationwide lockdown announced by the Government of India since last week of March 2020 to combat COVID-19, the company's operations have been impacted, resulting in reduction of sales volume, except for gas consumed in household kitchens. During the lockdown, the company has been able to receive gas supplies and has also maintained the supply of gas to all types of consumers as per their requirements. Considering continuation of gas supplies during lockdown, volumes recorded, and now with partial easing of the lockdown, it is estimated that sales volumes are likely to pick up gradually due to increased vehicular movement, opening up of restaurants, commercial establishments, industries and other businesses that are using gas. Daily sales volume has increased from 25% in April 2020 to 42% in June 2020 compared to normal volumes recorded in pre-lockdown period. With around 73% of normal volumes coming from CNG, we expect MGL is better placed to bounce back fairly quickly post easing of lockdown. Commercial sales volume may improve more gradually. The impact of COVID-19 on our operations may turn out to be different as compared to the estimates drawn up as of today, but the company will continue to closely monitor future changes. Considering the possibility of prolonged disturbances and in order to safeguard lives of our human resources, we have enabled IT arrangements to work from home, particularly for service functions like finance, HR, procurement, engineering and planning, CRM, et cetera. For functions like projects, O&M, marketing, where work on the field is necessary, observation of the prescribed safe practices are being ensured. MGL today is a strong incumbent in the CGD sector with significant strength and core capability. MGL being a debt free company in spite of likely adverse impact on our earnings in the current financial year, growth of infrastructure will not be hampered due to want of funds. However, remobilization of contractors, migrant labor, permission from housing societies as well as from other authorities could pose some challenge. We are rapidly expanding our CGD network in the existing license areas. During the recently concluded quarter, 32,582 domestic households were added. Today, we have more than 1.26 million household customers who are being supplied with pipe gas. We had a net addition of 24 industrial and commercial consumers this quarter. And as of quarter end, we had 4,021 industrial and commercial customers. Besides, as of quarter end, we had 256 stations, supplying CNG to around 7.51 lakh vehicles, and our aggregate of steel and PE pipeline network stood at 5,630 kilometers. With respect to our Raigad GA, we added more than 4,200 domestic CNG connections in this quarter and could fulfill the minimum work program target for providing domestic CNG connections. 14 CNG stations are currently operational in Raigad, and average CNG sales in Raigad had reached 38,000 kgs per day in pre-lockdown period. As a result of lockdown during quarter 4, we lost sales volumes in March 2020, resulting in reduction in overall sales volume for the quarter by 8.77% compared to previous quarter. As a result, current quarter EBITDA is INR 244 crore as compared to previous quarter EBITDA of INR 259 crore. On the margin front, EBITDA was 35.5% for Q4 and marginally higher compared to previous quarter EBITDA of 34.8%. Net profit after tax was INR 167 crores in the quarter as compared to INR 186 crore in the previous quarter. For the full-year 2019/20, overall sales volume had a marginal increase of 0.05% on a year-on-year basis. However, for the year 2019/20, EBITDA increased to INR 1,053 crore from previous year EBITDA of INR 885 crore. Main driver for EBITDA growth was improved gross margin on account of lower spot gas prices during the year compared to previous year. Coupled with improved gross margin and reduction in corporate tax rates, profit after tax has increased to INR 793.5 crore in financial year 2019/20 from INR 546.39 crore in previous financial year, registering a growth of 45%. The Board of Directors have declared a final dividend of 255%, subject to approval of shareholders at the forthcoming annual general meeting. With this, I conclude, and would now like to open the floor for questions. Thank you very much.

[Operator Instructions] The first question is from the line of Vidyadhar Ginde from ICICI Securities.

A couple of questions. First, if you could give us some idea on how you expect the ramp up of volumes? And when do you think you might get back to normal volumes during the year? And the second question is on the regulatory side, the -- there were some steps being taken by the regulator on -- following competition, and what is the progress on that? What is the latest on that if you could share with us?

The volume thing, I think, MD has already indicated something in his speech. No doubt volume was impacted sizably in the month of March, particularly last 8 to 10 days. However, we have seen improvements in April and May, May almost to the extent of 42% volume as compared to total normal volumes we have come back to. So there will be further improvement we expect in the June. However, precisely indicating the percentage when we shoot back to normal is a bit difficult at this stage. We'll have to observe how lockdown phases come out with and what are the responses of public at large also. It will depend upon that. But I think some indication of April and May, we have already given to you. Regulators -- can you repeat the question on the regulatory front, please?

There was this draft regulation the regulator had issued last year. And then, I think in one of the earlier calls, you guys had stated there was open house by the regulator. So what's the development on that? What is the latest on that? Have you heard what's happening on that, if you could share if you are aware of it?

Actually, from the last time we had this conversation, there have been no fresh developments on that front. Probably because the regulator's office also was closed down for some time. But again, the regulator will be the best answer to that.

Okay. And just to just clarify, I didn't catch. So what was said in the commentary is that May volumes are 42% of pre-lockdown? And how much was April mentioned as?

Approximately 25%. An important thing to note over here is I think you must be already aware, on an average, compared to if 100 is our volume, normal volume of company, 73% odd comes up from CNG. So we hope as the unlockdown process starts things should bounce back pretty faster for MGL. Because first thing which will start after unlockdown is obviously transport sector. So we are looking for the best, but right now it's difficult to precisely indicate because obviously that's not in the hands of the company.

How many CNG stations are open right now or all are operating?

Out of 256, about 220 are operating.

[Operator Instructions] The next question is from the line of Vaibhav Goyal from SBI Life Insurance.

Congrats on good set of numbers. Sir, primarily what I was trying to understand because there is -- of the difficulty level which we feel in the shared mobility, and for us, autorickshaw becomes one of the major chunk of contributor in the CNG volume. So you believe -- how things will normalize as per you? And probably what can be done to mitigate these kind of effects or to provide better things there?

Well, if you look at the autorickshaw population, there are more than 300,000 autorickshaws running in our authorized areas. Now as the lockdown gets lifted and gradually it phases, autorickshaws will start coming on the road. Now if the norms of only 1 or 2 passengers for rickshaw continue, we don't know how long they will continue, but if they continue, presumably the number of trips the autorickshaw will need to make may be higher to transport the same number of passengers, which could be a potential upside. However, there are also reports that a lot of autorickshaw drivers have left and gone back to their villages. They were migrants. Many of them are migrants. So when will they come back and the autorickshaw numbers on the road will come back to normal, that is something which is very difficult to say right now.

And sir, on the commercial side and restaurant side because now in the last 10 days, things have eased. So how has been the progress there on the volume front?

The industrial side has picked up. So -- and it's picked up pretty well. And however, the small commercial, which are the restaurants, they still haven't been opened up. So we are still at a very, very small number there. And the large commercial customers, which are these 5-star hotels and some bigger establishments, they are also facing a lot of challenges. So these 2 segments, we foresee will relatively take a little more time to come back to normal compared to the other segments.

So in short, on the industrial side, we would be at 80%, 85% kind of a level pre-COVID kind of now in the last, say, 10, 15 days? Or -- and commercial, around 50%, that would be a fair number or it is vaguely different from what he has -- what I said?

The lifting up has just happened a few days. But on the industrial, yes, the number could be in the range you're talking about. The commercial numbers would be much lower because we don't have -- we have thousands of these customers. So we haven't been able to actually get many meter readings also because of the smaller customers, especially even there is no automation, you have to physically go and check the reading, et cetera. So -- but we do know that many of the restaurants are closed. Only ones which are offering home delivery and takeaway, they are the ones who are being allowed to operate and using some gas.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

One question I just wanted to check on the CNG stations that we will be targeting to add on this 256 this year. A lot of them will be on the works, where the progress may be stopped because of lockdown. But what is the -- in second half this year or this full year, how many stations do you think you can add to this 256 number?

At current, estimate it's about 15. Again, a lot will depend on how the situation unfolds, equipment, labor, material, how soon it resumes back to normal levels, et cetera. But again if we have to make a guess today, we would say maybe 15.

Okay. And I also want to check on this in National Green Tribunal, the -- like in the previous quarter before the lockdown, they were -- they have identified 70 severe and critical polluted areas. Some of them were in our GAs also. Has there been any progress from their side, from the state pollution control boards, et cetera, on the entire thing?

No, the National Green Tribunal had identified 3 or 4 areas, where they had said that gas needs to be available. Our gas is already available in 3 out of those 4 areas. In the fourth area, we are ready to supply through virtual pipelines. But we haven't heard any more additional movement on the ground because -- probably because of all these problems, which are being faced currently. The industries are facing a challenge. Many of them are trying to reopen, but they are facing challenges with social distancing norms for labor, getting material, et cetera.

The next question is from the line of Pritesh Chheda from Lucky Investment.

Just 1 question. In the 73% contribution from CNG, what would be the shared mobility as a percentage there? And where we can include the buses, autos and the 4 wheelers, which are on the shared basis? What proportion of this 73% should be these 3, 4 areas?

Volume perspective, it will be difficult to predict because how they will operate also. What if it helps you at the most we'll be able to tell you that whatever CNG volumes comes to in the normal circumstances, what are the kind of breakup of vehicle numbers. For example, if we say 7,50,000 is the total CNG vehicle, maybe 3-wheelers account for nearly 3.5 lakh, private cars are around 3,20,000 odd, taxis in the region of 63,000. These are some major numbers in the total vehicle population. Yes, and of course buses, though the number is relatively small, but the per capita consumption is higher, there are nearly 2,500 or more than that buses also.

Okay. So I just wanted to understand Ola, so that the taxis and autos and buses, let's say, these 3 things, should be 60%, 70% of the consumption you're seeing of the CNG? More than 70%?

Yes. I think if you breakdown the vehicle population into private rentals and public transport, then yes, public transport would be in that range.

The next question is from the line of Nitin Tiwari from Antique Stockbroking.

So first one is a bookkeeping one, if you can give me a breakup of commercial and industrial volume, how much is that for the quarter?

Volume for the quarter you are saying?

Yes. Yes, industrial and commercial.

Yes, yes. Commercial was 0.173 mmscmd. Industrial was 0.212 for this quarter.

The line for the current participant dropped, so we move to the next question, which is from the line of Rohit Ahuja from BOB Capital Markets.

Sir, can you tell me what is the CapEx for FY '20?

FY '20?

Yes.

It was in the region of around INR 415 crores.

Okay. And how would we divide it between -- for CNG stations and for pipeline network?

One second sir, hold-on. CNG could be in the region of around INR 60 crores. And rates are, of course, still medium pressure pipelines and so many other things. CNG around INR 60-odd crores.

Okay. Right. Change in guidance for this year?

It's very difficult to predict. I mean, no doubt, we are aiming for higher, but there will be certain challenges, which will be there on the front of contractors, particularly for pipeline activity. And on CNG front, probably sometimes on equipment availability. We are aiming at least for similar or even higher, but bit too premature to say, right now.

Right. And for the 6-month period, starting from April, do we see better margins given the domestic prices were cut and also LNG prices were also, hovering, lower?

Yes. I mean, as you said, there are different, different factors. It will depend upon if we talk, particularly industrial, commercial, then one is the net realization, which are dependent on alternate fuel. If Brent levels improve, obviously, realizations will improve. That will be some benefits coming up. What has definitely dropped down substantially, if further drop continues then it will add up to the margin.

So if we were to compare margins between different products, would CNG be the highest of the product mix in terms of margins?

I mean, at a particular point of time, it could be different, but generally correlate our percentage point of view generally restaurant category is highest, followed closely by domestic and CNG, we have a marginal difference, and last pricing point of fuel in the industry.

Right. So CNG being 73%?

Gross margins, not at PAT or EBITDA level, it's almost impossible to talk at EBITDA or PAT level.

Right, right. So with CNG being 73% of your overall volume mix, do you see margin pressures till the time it normalizes?

Not really. I mean, number one, it will depend on what kind of gas cost increase we are expecting, if at all we are expecting for APM gas I'm talking about. And even if by chance price rises, if at all, I think the ability to pass-through is there with the company, obviously.

Sir, talking in terms of volume mix, given that CNG will take much longer time to recover to normalcy. Till that time it recovers, your margins would be under pressure?

No. CNG impact, we are expecting it will bounce back faster because once things tend to be normal or unlockdown is announced even gradually, as you know, maybe industry, commercial, these things may take some time, whereas we expect the transport segment will start picking up pretty fast. People have to move, obviously. In fact, things should improve quite faster in CNG volumes per our perspective point of view.

The next question is from the line of Manikantha Garre from Axis Capital.

Sir, just to continue with the earlier line of question on margins. Just wondering how are the discussions with the industrial customers post easing of the lockdowns? Was there any request from them to reduce your pricing given the weak spot in the prices? Or at least in the near term, would there be any change in strategy for you in terms of pricing for them, given the financial hit they will have taken during this time? That's my first question, sir.

Now pricing to the industrial customers is benchmarked to the predominant liquid alternative fuel they use. So because the oil prices had come down, alternative fuel prices also have come down. Automatically, there they got some relief in their gas purchase prices.

Okay. So the discount that you're maintaining has been more or less maintained with alternative fuels is what you're saying?

Yes. I didn't get your question.

The discount that you are maintaining to the alternative fuels for industrial customers has been more or less maintained, there is no change in that. Is what you're saying, right, sir?

Yes. Yes. In the last quarter, we haven't changed any discount.

And in the April and May months, sir, will there be any change in that?

The only change is a lot of these customers were not able to offtake volumes because of the lockdown, and they requested us for relief from that front, which we considered and gave them.

There are some requirements of minimum guaranteed uptake in contractual customers, so there some differentiation we have given or will be giving.

Sure, sir. And if I can ask a second question. Just wanted your thoughts on the dividend policy going forward. Given our payout has been 36% in FY '19, and it has been increased substantially to 44%. And our net cash levels also have been continuously rising. So can we expect a similar level of dividend payouts for the next couple of years?

At this time, one has to remember when we have talked about final dividend of INR 25.50, there is also inclusion of special dividend, which we announced for INR 15 crores -- sorry, INR 15 per share. This is obviously due to the fact that no doubt margin front it was better, but substantial benefit has come from corporate taxation. And the benefit, which we have got from spot prices remains to be seen whether similar benefits continue in near future also. It is not just one factor on which the payout ratio or for that matter dividend distribution will be dependent upon. There will be, obviously, CapEx considerations. There are some slightly bigger amount of contingent liabilities are also there. Probably, you must have read notes to the account. We are hopeful that the CapEx will be in our favor. But at the same time, we need to be careful and cognizant of the matter that there are contingent liabilities. There will be -- there were questions, obviously, on expansion areas like GA-3, Raigad. There are some minimum work program requirements given by PNGRB. All this will require definitely a lot of funds. On the other hand, the cash generation for the forthcoming year, obviously, is going to be impacted. And it may not be possible to come out with same results. Obviously, the way it was in this year. I think right now, we can't predict in that manner. Hence, we will be taking cautious approach. So we have total dividend. But you will appreciate, I mean, whenever the opportunities arise we'll be cognizant of the treasury surplus, which we have, and you will see this time, the total dividend rate, which we have declared is 350% versus 200%, which was there for last 2 years. So hopefully, that should give some clues to you.

The next question is from the line of Janish Shah from Quantum Advisors.

Yes, this is Janish here. I have a question on your licensing. Basically, the Mumbai MMR region license is getting due for renewal. Can you just share what is the progress on that? I think it got expired somewhere in March or April. So if you can just give an update on that?

Well, right now, the exclusivity issue of Mumbai is subjudice, so we really can't comment too much on it.

You're talking about network exclusivity or like...

Both, both. I mean, there was a challenge in the Delhi High Court about 3, 4 years back on this exemption from purview of common carrier as well as exclusivity and the validity of the whole exclusivity regulations were challenged, in that court.

So do you mean to say that -- I mean, till the time that doesn't -- so this renewal -- there are no processes defined right now for the renewal of the license, right?

No, no. There are no regulations in place for any process of any such thing.

So till the time you get a court verdict, this will not get moved -- this will not move forward? Is it the way we should understand?

Yes, you can say we are waiting for some legal clarity on the matter. And in the meanwhile, if PNGRB does something, then we will have to wait and watch. But we are not expecting any material adverse kind of impact on our business because of this issue.

Okay. Okay. And I just want to get a clarification. You said 70% of the CNG volume is back, right?

No, no, no. 70% of the Industrial volume was back in the last period, in June also.

Okay.

42% is back.

42% as on May end you are saying of the total volume, right?

Yes, as compared to normal total volume.

Yes. But how do you see like in last -- after June, I mean, what -- at what level currently the CNG volumes are now being picked up?

Around 40%.

Around 40%. Okay. Okay.

That next question is from the line of Vikash Jain from CLSA.

I just wanted to understand what just Janish was asking anyways was, so you -- this 42% of overall volumes, you think are -- is where you are operating 42% of the -- of pre-COVID level for all 4 kinds of customers put together. Is that what you mean by that statement?

Domestic, we are doing pretty well.

Yes. So domestic is about 15%. That should be about close to 15%, almost 100% there. The remaining 10% is industrial and commercial that you are seeing at 70%, so 15% plus 7% is 22%. So only about 22% of the 73% of CNG is where you're operating, roughly 30% kind of level. Is that what you mean?

I think you almost answered that. We cannot be too specific, obviously.

No, no. Yes, so is this 42% of normal is for overall, which means much lower for CNG, obviously.

42% is total sales as compared to the normal total sales is what we are saying.

Correct, correct, correct, correct. Okay. Okay. And so the -- if I were to formulate my remark specifically focus on, say, the industrial part, you're saying that you've kind of managed to reach around industrial about 70% or so. So that you are hopeful will get to close to normal in a couple of months. Is that how you think of it?

Again, it will depend on how events unfold and how the economy and the industrial sector recovers. Our sales volumes are subject to the level of industrial activity in our region.

Okay. And sorry, I think you did mention something about commercial, but -- so commercial is very low in terms of utilization of oil versus the normal level, right? Because of restaurants and most hotels are hardly operating. Is that what you said, right?

Yes.

Okay. So the commercial is clearly the worst hit, then it's CNG. Industrial is much better than what it was in April, and of course, PNG is not touched much. I mean, there is not much impact.

The next question is from the line of S. Ramesh from Nirmal Bang.

First thought is drilling on the low volumes. If you were to see 60%, 70% volumes, how does that impact your costing in terms of the ability to absorb the fixed cost? So just to understand how the numbers will move this year. I would just say other expenses including employee costs will not change. What proportion of the other expenses remain fixed irrespective of the volumes?

This expenditure with respect to CNG customer category, considerable portion is variable. For example, in the region of INR 125 crores to INR 150 crores, will be the power-related expenses, which are 100% variable with reference to CNG business. Similarly, if there is something called gas carrying, which is what we have to transport gas for our daughter booster station. Those charges are also variable. The commission or whatever share we give it to our CNG franchisee operator is also dependent it is 100% almost variable with reference to sales. CNG, most of the expenditure is in the variable nature leaving aside, of course, maintenance activities of CNG. There could be definitely some planned maintenance activity of CNG and sometimes obviously breakdown or unplanned expenses. So those will remain at some sort of fixed expenditure. Similarly, maintenance activities on CNG will be on fixed nature. So you are right, maybe employee cost is one thing. But apart from employee costs, maintenance-related expenditure, you might find in accounts if you go through expense schedule. Maintenance-related expenses are likely to be continued. That is quite likely. Whereas otherwise, most of the CNG related expenditures are variable in nature.

So then I go to the cash flow, so given your capital expenditure commitment, broadly, you think you should be able to generate the cash and you won't need any external financing. Am I correct in that assessment?

Yes, as of now, we think so.

Okay. And then 1 more thought on the longer-term plans. Now you're talking about Raigad. And the last time you discussed a peak volume of 0.6. Now given the kind of local market conditions, do you still think that 0.6 is achievable in 4, 5 years in terms of number of vehicles and the household customers? Is there any change in the trajectory to that peak volume in Raigad? Any other area where you think you can get some traction in terms of growth?

No, there is no change in that number as of now. But again, 5 years down the line, it's -- yes, that's our current estimate is all I will say.

And just 1 final thought. In terms of your business plan over the say 3, 4 years, what would be the annual recurring CapEx for your new projects?

Yes. Now this impact of COVID, how long it is going to continue with the prolonged effect. But if we temporarily leave aside that, the range is obviously around INR 450 crores to INR 500 crores at least.

That will be the annual CapEx.

Yes.

The next question is from the line of Sabri Hazarika from Emkay Global.

I have just a few housekeeping questions. First, what was the commercial and industrial spot price for Q4? And what is it currently?

Net realizations you are talking about?

Yes, sir.

Commercializing the customer category put together net realization was INR 36-odd per SCM.

This was in Q4?

Yes, Q4 2019/20. And industrial, it was slightly lesser than INR 29 for SCM.

Okay. And what could it be currently?

Currently more -- maybe slightly lower marginally.

Okay, sir. And secondly, you said that in Q4, the impact of COVID lockdown started in the last 8 to 10 days of the quarter. So at that point of time, what was the kind of -- I mean, do you have any quantifiable numbers? Was it down 40%, 50% for that last 8 to 10 days? Any number on that?

Actually, volume has come down to around 20% of the original volume, and we have lost some 25 to 30 mmscmd of debt, which could not be sold.

In the last 8 to 10 days of the previous quarter. Okay. And just one last thing, sir. CNG volumes in million kg, do you have that number for the quarter?

Yes. For this quarter you want?

Yes, sir, in million kgs.

1 second. Okay. I have in crore. I can give it and you can translate it. 12.9 crores or almost 13 crores for this quarter, kgs. Yes.

The next question is from the line of Jeet Gala from Centra Advisors.

I wanted to know what is the sourcing of your gas. And where is it coming from? How much it is coming from APM and non-APM? And how much is the imported LNG?

So all our requirements for the CNG and domestic household segments come from domestically produced gas. All our requirements for the industrial and commercial customers comes from imported RLNG industry. As far as the APM -- on APM, the price is the same, so it doesn't really make any material -- too much of a difference.

Because you're ending with CNG and domestic CNG, this is why the prices change?

No, just for technical nomenclature, which ONG CEO, he was using, the gas is the same, the price is the same. Some part of it, they are terming as APM. Some part of it they are terming as non-APM.

Okay. But it's the regulated pricing.

Yes, it's a formula driven price. Formula is notified by the government of India.

Okay. Okay. And sir, can you help me understand how the buildup of unit cost happens? So from ONGC is still the scale, where it is now is the factor of that station? So how much -- so basically $2.39 per MMBtu on gross calorific basis is the regulated pricing as of today? So on that, how much is added -- so that is basically converting into a net calorific value. So what is the plus-plus cost adding up to and if you could explain to me?

So these costs will get added onto ONGC gas cost and the regulated transportation charges of GAIL. They are different for different pipeline systems. And the Mumbai regional network of GAIL has a particular tariff. GAIL Dahej-Uran pipeline has got a particular tariff, which is also nonzone-wise. So depending on the source of the gas, the regulated pipeline tariffs are added on. These tariffs are available on the website of the regulator.

Okay. Okay. Got it. And my second question is, sir, how many ways are there to put up a CNG station? I mean the company owned, the dealer owned, dealer operated, so what are the different models in which you can run a CNG business with respect to the amount of investment which go into each particular model versus the fixed charges, which you would otherwise have to pay in some other way of operating. So if you could just explain me that part.

We have CNG stations in the various channels. A majority of our stations are with oil marketing companies where we co-operate our CNG facilities along with their petrol pumps. We also have a lot of stations with transport undertakings, like BEST, Thane Municipal Transport, et cetera. This is for the captive use of their bus fleets. And some of those stations, we also have a small parcel of land from where we can do sales to outside vehicles also. So that is the second channel. The third channel is we do get a few Coops, not too many, from the government agencies, the state government agencies like MIDC, et cetera. When we acquire those parcels of land and set up CNG stations there ourselves. And fourth mode is where we partner with private entrepreneurs and industries, have the CNG station in their land. And so what our scope and roles and responsibilities on the different third parties vary slightly depending on whether it is a transport undertaking or oil marketing company or private dealer or MGL on its own.

Okay. Okay. Understood. And sir, one last question. Sir, whenever the prices are falling and in -- the one which we are seeing right now, we have margins that are expanding because the price of alternate fuels are probably not dropping as much as your sources are dropping. That said, whenever the prices do increase in future by dollar or $60 crude or $60 a barrel, at that time, you get a chance to hikes your higher prices and recover the hike from the end users. So this new situation is ideally more profitable for the company, I think than when global prices are down or when the global prices are up.

One thing here to remember, one is, at a given point of time, what are the movements happening both at front level and spot gas price level. And another important point to note over here is the price movement sales realization is not a conscious choice, which ideally these are happening in industrial and commercial sector. For our pricing philosophy, the price is benchmarked with alternate fuel prices. So typically the realizations drop down. Our customer gets benefited whenever alternate fuel price drops. Yes, if the drop in spot prices is proportionately higher than the drop in alternate fuel prices, then MGL tends to gain. That is true.

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

Sir, just wanted to understand, sir, how much gas will be flowing from Raigad now? I'm guessing before the COVID came back.

Raigad, majority of the sales happens in the CNG segment, 38,000. We used to sell about 48,000 kgs per day before -- pre-COVID times.

Got it, sir. Sir, second, I wanted to understand, post BS VI, has there been any change that we are contemplating as far as CNG pricing is concerned?

On the pricing front, no.

But the -- but is it right to assume that your ability to price is better given that diesel variants will not be available for the customer?

Yes. To some extent, our ability to pass through costs of increased prices will improve a bit because it is expected that diesel vehicle costs will go up.

Sure. And sir, just one last one. Of the INR 400-odd crore CapEx, what's the kind of maintenance CapEx that you need? And what's the growth CapEx roughly because of imports?

It could be in the range of 10% to 15% maintenance CapEx.

Of the INR 400 crores?

Yes.

The next question is from the line of Yogesh Patil from Reliance Securities.

My first question is related to Mahanagar Gas contract negotiation with the private CNG pump owners. Sir, in last month's news flow, we read that gas supplies have been stopping for the 5 CNG stations. So any update on that side, sir?

Yes, we are in discussions with them, and we are hoping to conclude something quickly.

Okay. So that 4 to 5 stations are not operational as of now?

No, as of now, they're not.

Okay. Okay. And the second question is on the side of, sir, CNG sales volume. If CNG sales volume takes more time to recover from the lockdown levels, then are you planning to raise the CNG prices to recover your fixed cost and other operating costs like the IGL has -- did in last month?

We will wait for some time and watch. The other point to note there, there is -- when the gas prices dropped in April, IGL had substantially dropped their prices, whereas we have done a calibrated reduction in our prices. And just on your previous point regarding the stations, I think in a day or 2, those stations will be getting reopened, and we'll be having dialogue to resolve whatever issues they have.

Okay. Sir, and last question from my side. Sir, if you could provide a sales volume guidance for FY '21. We know that it will be down year as compared to FY '20. But any ballpark number from your side and mostly on CNG sales volume?

It's very difficult at this juncture. Maybe we'll have to wait until Q1 end.

The next question is from the line of Lokesh Manik from Vallum Capital.

My question was mainly on the upcoming gas exchange that we are hearing about. I just wanted to understand the benefits this could have for us in terms of sourcing requirements. Do you see that it can lead to a better price discovery than what we have right now in the international market?

So time only will probably answer that question. MGL's concern though, it can be taken as one additional option for us to source our gas in case we decide to source from there.

Okay. And this would be, obviously, from catering to your industrial customers that is on the spot RLNG if I'm not mistaken.

Yes.

So this is just another avenue for you toward -- you're not really sure that it would provide a better price discovery?

So we are watching the developments pretty closely, and if it will makes sense, we will avail of that opportunity. So again, I think we'll have to give it a few months. I think once the exchange actually starts, we'll see what is the market acceptance and what are the sellers and buyers, how are they doing on that platform.

Okay. And any difficulties you might face in terms of regulation, certain taxes being included, excluded in these contracts? Or are they all sorted out?

No, I don't think there are any tax-related issues. It's just a normal gas purchase and sale transaction, which is expected to happen.

The next question is from the line of Siddharth Rajpurohit from JHP Securities.

Sir, can you please give me the breakup of prices for APM, non-APM, PMT and spot?

APM and non-APM priced the same. PMT, PMT has stopped for many months now. And spot prices are in the $3, $4 per MMBtu kind of a range.

Okay. So $3, $4 is landed, right, MRPs, including network charges?.

Maybe land is maybe a bit more.

Okay. Okay. And sir, APM is -- sorry, PMT is discontinued, but that volume for you has been now under APM, right, sir?

Yes. The volumes are being retained by a mix of APM, non-APM.

APM and non-APM. Okay. But are our CNG and PNG volume, 100% guaranteed by APM? Sir, how is that contract sized?

It is a policy of the government. So once the policy is there volumes are assured.

Okay. Because obviously gas is a very scarce resource. Okay. So given that -- given the future growth also, it is guaranteed under the priority sector.

Yes, at least for the foreseeable next few years, so definitely, we don't foresee an issue.

Okay. Okay. Anything that you have planned sir because your network exclusivity had ended and if a new partner, call it, would like to enter, how will you decide the prices for them? Anything on your end, sir, that you have decided?

Can you be a bit louder and repeat the question, please?

Sir, the network exclusivity for us has ended now. So have you done any calculation if any new partner wants to enter the market? Or what will be the network charges for them?

None of the -- network charges regulations are yet to be notified by the regulator. And there are some legal challenges, which are ongoing on this issue. So again, it's only with some passing of time, we'll come to know how that plays out.

The PNGRB lost the case in Delhi high court against IGL for pricing. So does it indicate that PNGRB doesn't have that much amount of authority in deciding any pricing?

Yes. PNGRB doesn't have jurisdiction on the pricing of gas. That was the final ruling -- I mean final decision, which was handed by the Supreme Court about 5, 6 years back.

Right. It is also applicable for network charges also, it's not specifically for the MRP, also for the network charges.

No, the regulator does have jurisdiction to determine the charges, which will be paid by a third-party shipper or a marketeer. For transportation services or gas distribution services in our regulated business, the regulator is entitled to set the tariffs.

But that is for the interstate, right, for GAIL specifically, that is supply from the source to the distribution.

No, it is as well for both transmission pipelines as well as gas distribution networks.

The next question is from the line of [ Soumya Arun ] from Spark Capital.

Sir, my question is on the margins. Your Q4 margins and the gross margin are recorded as a per unit number, it has increased substantially. So I mean is it a right read that the industrial has been the key driver for this? Because I see, as for the numbers, commercial and industrial realizations, you see that it's probably grown at INR 3 per SCM on a Q-o-Q basis. So is this probably driving a big chunk of the gross margin improvement sequentially?

Yes, you're right, both in the industry also and restaurant category also. There are the advantage on sales realization front, at the same time, spot gas prices advantage were also there. So coupled with these 2 things, obviously, the gross margin has gone up.

Got it, sir. Sir, when I look at -- on a Q-o-Q basis, for Q4, the Brent prices have come off, so which means the alternate price of fuel also would have come down. So in this environment, I mean, if there is a price increase from our side, is it because of a lag effect that we have in terms of price setting? Is that the driver?

It could be. For example, if we talk about LSHS prices, I have some averages for Q3 LSHS rupees per tonne was something around INR 29,660. Whereas the average price LSHS for Q4 was INR 31,000 odd per tonne.

Okay. Okay. Got it, sir. Sir, and is there any time line that we have in terms of getting these prices reset on the industrial and commercial front? Or is it like if it's variable, it's depending on how global prices changes, so we take a cut? Or is there any time line attached to it? We reset it once a month or something?

Usually, we do it about once a month.

Once a month. Okay. Got it, sir. So one last follow-up question, sir. Sir, in terms of CNG station addition plans, I mean over the next couple of years, what would we be looking at? And I mean how have things changed this year? I mean something that we had planned this year is getting pushed over to next year, so I mean your thoughts on that will be helpful.

Number of stations we have said that this year is going to be very difficult to estimate. But when asked to guess earlier on the call, you have a number of 15. Definitely, we are hoping next year will be more than that. And if you look at our past history, we have been doing 20-plus new stations typically each year and also doing a good number of upgradations.

Sorry, sir, I didn't get that number. The number that you said for this year is what, sir?

I mean if asked to guess, we said 15, 1-5. And we said there should be a few upgradations too.

The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.

The question is on the recognitions. You've mentioned that your infrastructure exclusivity has expired. But does the current regulation provide any headroom for you to get an extension in the infrastructure exclusivity? Or is that a gray area?

The current regulations, as they stand, has a provision for granting extensions on blocks of 10 years each. But since the whole regulation has been challenged in a subjudice, so it's really difficult to do much on it unless the judicial process runs its course.

So does that mean that in the scenario or PNGRB would come out with a regulation, asking for market exclusivity and infrastructure exclusively has expired, would you be challenging this particular aspect?

The aspect is already under challenge in Delhi high court since 3, 4 years now.

That's from the IGL side. That -- you are also the party to the same?

We have joined. IGL had started it.

The next question is from the line of Vidyadhar Ginde from ICICI Securities.

Just wanted to confirm or get your thoughts on. So based on the discussion, I think this has been discussed in earlier questions also. How do you see the margins for this year because it was also asked, what is the -- in terms of low volumes, fixed cost, how it will play out. You have some levers in terms of price hikes potentially going forward. But assuming that spot LNG prices, let's say, stay where they are, oil prices stay where they are, also LPG price, fuel oil price stayed similar to what it is now, so do you see margins this year to be similar to last year, higher, lower? How do you see that?

Everything remains same. Obviously, margin per se, gross margin actually is obviously going to remain same. Question will remain then...

But volume is lower now? I'm not saying volume is the same.

We are talking about -- we are not talking about the PAT margin. That is what we have already cleared earlier. When we talk of gross margin point of view, everything remaining same, it will continue the same. Whereas, if the question is, okay, but volumes are going to be impacted, so what happened to fixed costs, I think we were explaining -- I think one more question was there. So in case of CNG customer category, sizable amount except probably to repairs and maintenance is 100% variable in nature. So it's only the planned maintenance activities and sometimes maybe some unplanned breakdown expenditure. That is what is the fixed and semi-fixed nature. Similarly, maintenance activities in respect of PNG will also be fixed in nature and things like employee costs will be fixed in nature. But the way volumes are ramping back, if we can say so, for example, in the speech, MD also indicated that, as compared to normal volumes in the month of May, we have already recovered up to 42-odd percent. If this trend continues, I think fair amount of these costs, we should be able to cover.

So you're delivering margins that are sustainable at last year's levels?

By unit margins, yes. I mean they are, barring all things, remaining the same.

Then they are. Yes. So basically, I think the impact of fixed cost is nonbinding. So volume loss is not going to -- is unlikely to have a big impact on margins.

Yes. Because as I said, 73% is the PNG business and timetable PNG cost is 100% variable.

So margins will get impacted either way only depending on the movement of spot LNG and fuel oil and LPG prices, that is what will determine.

Yes. And whatever conscious decision we may take on PNG and domestic prices.

Okay. Okay. So basically, we have a lot of levers in that.

Yes, those levers are there.

The next question is from the line of Nitin Tiwari from Antique Stockbroking.

I'm sorry I got dropped out when I was asking. So second question basically is related to the network expansion. So at what basically level of saturation do we stand? And as you mentioned that you'll be spending close to INR 400 crores to INR 500 crores every year on a recurring basis, so what level of network actually we see is a threshold level at which the saturation would have been like sort of achieved? And what is the time frame for that? So one question is that, sir.

We are still having a lot of residual potential in our areas. So the question of reaching saturation in 5, 6 years is behind us. So the rate of ramp-up will depend on how fast we're able to get customers to roll out our infrastructure.

Right. But there will be a threshold level, right? So we are adding CNG stations out there at about 20, 25 every year. So what is the number of stations at which likely we would be like targeting most of the geographical spread and like vehicle population where incremental station addition would not be required? So you would have some estimate of that number. That's what I was trying to ask. And of course, like on the pipeline to domestic household front, I believe we are at about 35%, right? That was a number I remember from one of our last conversations.

Yes, that's true. We are at roughly about [ 30%, 35% ] penetration in almost all our segments. With regard to the number of CNG stations, we don't think on a strategic number, it will never reach a situation where we will be able to say, okay, now we don't need any more stations. That's because the vehicle population is huge. And opportunities are really huge. And those many retail outlet sites may not be available. [ Those will depart ]. However, in the suburbs and GA-3, et cetera, there -- yes, there could be enough land to meet whatever demand which comes up. Again, we're not targeting any final level of number of stations as such. So we look at how the demand is coming up in various areas, where is the requirement, where is the need, and then we make targeted efforts to open CNG stations in those areas where we think they are required. With regards pipe gas infrastructure, again, we are at about 30% penetration level. There, the gain from pipeline infrastructure has already been put in the ground, so especially in year 1 and year 2. So additional infrastructure was largely in terms of last-mile connectivity and CapEx for that, again, that is a function of how many connections we manage to do every year.

Right. And sir, my next question is around PNGRB guideline, which has come around setting up of LNG stations. So do you think that could be sort of basically a concern for us? Or like, we would also want to get into LNG dispensation business?

It is more of an opportunity rather than a concern. Currently, we are not in the LNG business. Actually, LNG as a fuel for vehicles have not really started, but probably 1 or 2 vehicles on a pilot basis or something. So the advantage we see there, if this segment, and this will basically take a chunk out of the diesel market. And as those vehicles are developed and manufactured, the engine remains the same. End of the day, engine is going to burn gas. So -- and whether you use LNG or use CNG, there's not too much of a difference. So overall, if it expands the market for use of gas as a transport fuel, it could be advantageous for us.

In terms of logistics, sir, as far as LNG is concerned, so the transportation from an LNG receiving terminal to the consuming areas would mostly be by trucks, I suppose. So would that still make it economical versus, say, PNG or diesel?

This actually depends on a lot of factors. The location of the terminal, the location of the retail outlet and whether there are any transmission pipelines in the vicinity where you're putting up that station. So the answer was really depending location to location. It will also vary depending on the sales volume out of that outlet. I don't really understand -- I don't think there is one single answer for what will be better off. But of course, with LNG getting cheaper now, yes, maybe the economics do improve over a quarter. It was about a couple of years now. But having said that, domestic gas prices, which are used for the CNG segment are also pretty low.

Right. And sir, lastly, maybe in terms of offtake of domestic gas in this quarter, so far we have seen lower sales. So in terms of allocation that we have of domestic gas, so what does that mean with respect to our offtake obligation? So are there any liabilities that are coming up on it? Or is there like more flexibility as well as to defer that uptake? So how is that working out? Have you basically declared a sort of a force majeure over it?

Yes, we have asked GAIL to consider force majeure because of COVID. We understand GAIL has also raised that request from ONGC. But as things stand now, currently, we are not expecting to incur any -- take up a liability on this account.

Right. So why I asked because, actually, force majeure also requires a complete closure of business as such, I mean like in terms of -- I mean in terms of legality, there should not be any business that occurs, should not be in a position to conduct business. But some sales have happened, right? So around 25% was what we're selling in April. So would that be an issue or like most probably you're okay as far as legality is concerned.

A force majeure has just one handle to it. There are a few other barriers also in place because GAIL can claim, take or pay only if it was not able to place its gas in the market. So only if GAIL incurs take or pay from ONGC. GAIL takes gas from ONGC, not just for CGD. It goes to fertilizer, it goes to power, it goes to a lot of other sectors. So it's only on overall basis that GAIL plays to that situation and ONGC, invokes take or pay. Then that is the element of risk. But again, there are a few ways to mitigate that also through contractual measures, which we are doing.

The last question is from the line of Ashutosh Chaubey from Centra Advisors LLP.

My question is with regards to your CNG business. Could you help me understand what is the average amount of investment that is required to set up a CNG station? Also, what is the volume of business done per year, the revenues that are generated from a CNG station and the profit that are generated for CNG stations?

Typically, the cost will be in the region of INR 2 crores, but it all depends on what is the size of compressor we are putting in, how many numbers of dispensers we will be putting in. Also separately, the cost of branch lines comes in. That is from the station line, in the particular CNG outlet, how far is the line located from transmission pipeline because there is a pipeline which is also involved. So all these factors need to be considered before we arrive at a cost but benchmarked against INR 2 crores, INR 2.5 crores per outlet. And regards -- yes, excluding branch pipeline. And hopefully, you are aware that there is no land cost involved whichever channel we choose, whether it is through co-operating our stations at OMC or, let's say, through franchisee operators. There is no land bought out [ be invested, involved ] into these things. So that's on one hand. As regards sales volume, it's very difficult to say any typical or average sales. It all depends on the -- as we said, number one, the capacity of compressors, number of dispensers placed over there, the customer potential available over there. Various factors would be involved, even the type of stations. Sometimes it's the online station that is connected through pipelines. Otherwise, it could be daughter booster station where the gas is supplied through cascade. So it's very difficult to answer in respect of volumes. It will change and vary from station to station.

Okay. Sir, the second question that I have is could you help us understand how is the APM gas allocation done by the government.

Well, the APM gas allocation actual numbers come out from PPAC. PPAC and GAIL work together on doing this. So typically, it's done twice a year. And for the first half of the year, whatever sales volumes have been achieved in the domestic for PNG and CNG segments, that has taken as a pay over next half year. And in the next half year, you'll also draw 110% of your previous half year volumes. So that's how the allocations keep on rolling.

Okay. Sir, as we know, out of the total, India domestically produces around 70 mmscmd of domestic gas. How much of this is allocated towards APM? Could you give us a number?

For the CGD business in pre-COVID times, it was about 14 or 15 mmscmd at the most. So in the pre-COVID time, the domestic gas being provided through CGDs in the country for CNG and domestic PNG was about 14 mmscmd.

Okay. And I have one last question that is APM gas only goes towards the CNG and domestic PNG. Is that correct? Is there any other priority sector for that, allocation is done through?

Our priorities for this segment, of course, the fertilizer sector is also pretty high on the priorities. I think it's followed by our LPG production or 1 or 2 steel plants and private, industrial and steel and petrochemicals, et cetera, are the last.

I now hand the conference over to the management for closing comments.

Thank you for joining the call and...

Okay. Thank you.

Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.