Mahanagar Gas Limited (MGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Mahanagar Limited -- Mahanagar Gas Limited Q1 FY '20 Earnings Conference Call hosted by Elara Securities Private Limited. [Operator Instructions] I now hand the conference over to Mr. Gagan Dixit from Elara Securities. Thank you, and over to you, sir.

Yes. Thank you. A very warm welcome to everyone. It is our pleasure to be able to bring to you the management of Mahanagar Gas Limited, led by Mr. Sanjib Datta, who is the Managing Director; Mr. Deepak Sawant, who is the Deputy Managing Director; Mr. Sunil Ranade, Chief Financial Officer; and Mr. Rajesh Wagle, who is the Senior VP, Marketing. So with these words, I would now hand over to the conference -- to the Jill from E&Y for the safe harbor statement.

Thank you, Gagan. Good evening, everyone. 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 statement includes, but are not limited to, risks and uncertainties regarding fluctuations in sales volume, fluctuations in ForEx and other costs and our ability to manage growth. I urge you to consider the quarterly numbers as not a reflection of long-term trends or an indication of full year results. They should not be attempted to be extrapolated or interpolated in future numbers. With this, I will now hand over the conference to Mr. Datta for his opening comments. Over to you, sir.

Thank you. Good afternoon to all of you, and welcome to the earnings conference call of Mahanagar Gas Limited for the first quarter of the financial year 2020-2021. I would like to thank all of you who have 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 novel coronavirus, COVID-19, as a pandemic. This outbreak is causing significant disturbances and slowdown of economic activity across the globe. 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 for the full quarter resulting in reduction of sales volume, except for gas consumed in household kitchens. However, during the lockdown, the company received its gas supplies and maintained the supply of gas to all types of customers as per their requirement. Now with partial easing of lockdown, daily sales volume has increased from 25% in April 2020 to 55% in July 2020 compared to normal volumes recorded in pre-lockdown period. Sales volume has farther improved to around 65% level in the month of August. It is estimated that sales volumes are likely to pick up farther due to increased vehicular movement, opening up of restaurants, commercial establishments, industries and other businesses that use gas. As the cases of COVID-19 are still rising and the annunciation of responses to it by the statutory authorities may also get modulated from time to time, impact on our operations may turn out to be different as compared to estimates drawn as of today. But the company will continue to closely monitor future changes. In early 2020, the state government launched Mission Begin Again with some easing of restrictions, though a host of restrictions of the lockdown currently stands extended till 31st August 2020. Continued restrictions resulting in limited attendance in government and private offices is having adverse impact on securing and revalidating required permissions for pipeline laying work. Lockdown restrictions also have resulted in adverse impact on availability of contract manpower, much of which has migrated to their native places and are reluctant to come back due to frequent lockdowns. Many societies are also not allowing access to MGL staff to undertake construction work. In July 2020, there was reimposition of strict lockdown in municipal areas of Mira-Bhayandar, Thane, Navi Mumbai, Kalyan-Dombivli, Panvel and Raigad, which impeded construction work. As Mumbai Metropolitan Region is one of the most affected areas due to COVID-19 outbreak, continuation of partial lockdown or reimposition of complete lockdown in parts cannot be ruled out. Considering the possibility of prolonged disturbances and in order to safeguard our human resources, we had enabled IT arrangements to work from home, particularly for service functions like finance, HR, procurement, engineering and planning, CRM, et cetera. For functions like project, O&M, marketing, et cetera, where work on the field is necessary, observation of the prescribed safe practices are being ensured. Gas supply to PNG consumers and all our open CNG stations have been maintained 24/7 during the lockdown. Our emergency control room and customer care services have remained operational, adhering to required safety and social distancing guidelines, providing 100% customer support and meeting the emergency needs. As a responsible corporate citizen, we have continued to pay all our dedicated contractual manpower the minimum wages applicable during the period of lockdown. We have also funded various social initiatives under CSR projects for people impacted due to COVID-19 and prolonged lockdown. As a result of lockdown throughout the quarter, volumes were adversely impacted, resulting in reduction in overall sales volume for the quarter by 60% compared to previous quarters. As a result, current quarter EBITDA is INR 80 crore as compared to previous quarter EBITDA of INR 244 crore. On the margin front, EBITDA was 30.6% for Q1 compared to previous quarter EBITDA of 35.5%. Expenses per SCM of gas sold are high, mainly due to overheads remaining at normal levels with reduced volumes. Net profit after tax was INR 45 crore in the quarter as compared to INR 167 crore in the previous quarter. With this, I conclude, and would now like to open the floor for questions. Thank you very much.

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

One, on your last earnings call you had suggested that you have several levers to maintain margins, but margins are down quite significantly, but now they have improved somewhat.

I'm sorry, Mr. Ginde, we can't hear you. Mr. Vidyadhar Ginde, sorry to interrupt. Mr. Vidyadhar Ginde, sorry to interrupt. We're not able to hear you.

Going forward or margins will continue the way it has been compared to what you have done in the past?

Vidyadhar, we're not able to hear you. Can you repeat the question, please? And speak a bit loudly on the handset, please. Thank you. Hello?

There seems to be no response coming in from this line. We'll take our next question that's from the line of Kishan Gupta from CD Equisearch.

Dhagash Shah this side. So my first question is what is the CapEx target for this year? Hello?

Yes. CapEx target, we are still hopeful of anywhere between INR 550 crores to INR 600 crores. But it will be dependent upon the speed at which particularly the permissions are received from various statutory authorities.

Sir, given the lower demand this year, is it not possible to defer this CapEx?

I think we could not take any short-term view. I mean, 1 year here and there is not an important element to consider. Also, there are capital expenditure with reference to security supplier also involved. There are some minimum targets in respect of Raigad area, which CapEx is also required. So while setting the targets or compiling budgets of the company, everything has been taken into consideration. And funding is anyway no issue that you are already aware of possibly.

Sir, can you just give us a brief breakup of this INR 550 crores, INR 600 crores if everything goes according to plan?

What do you mean by breakup?

As in where would this be spent?

Around INR 120-odd crores will be in the area of Raigad, rest in other than Raigad area.

All right. All right. And sir, what has been your capacity utilization for FY '20?

Can you...

Capacity utilization of what?

FY '20.

Capacity utilization of what you are asking? I mean...

Sir, FY '20, last financial year.

You're talking of physical network capacity or you're talking of CNG station capacity? Or...

No, I'm asking, sir, capacity utilization.

Of PNG station or which?

Yes, sir, both CNG and PNG.

No. CNG stations, we have been averaging about 50% capacity utilization on an average, and the individual stations may range between 15%, 20% to right up to 90%, 100% also. And PNG, typically a domestic household consumes 0.5 cubic meter of gas in our estimates over a cumulative period of 4 hours during a 24 hour a day. Maybe you can derive some capacity utilization from there.

Okay. Okay. So sir, again, I might be overstressing this. But in a downturn here, do you think this is a right move to spend INR 550 crores, INR 600 crores on CapEx?

See, infrastructure need to be developed. Because this -- effect of this pandemic may not last very long. And then if infrastructure is not developed, the utilization cannot be done after this. So this all CapEx, which has been mentioned, is for the development of infrastructure.

[Operator Instructions] Our next question, we would take from Vidyadhar Ginde from ICICI Securities.

Yes. Can you hear me?

Yes, sir. We can.

So my question was in that the last earnings call, you had suggested that you had several levers to maintain margins, but margins are down quite significantly in Q1, but now volumes have been significantly recovered from the lows of April. Do you now expect margins to improve significantly going forward, going back closer to the kind of margins we were making last year?

Yes. It will be dependent on 2 things. One is, even with current, this Q1 EBITDA margin very low, you will observe that gross margin has, in fact, improved. It is all the downturn which we have seen is because of the OpEx per SCM going up. In fact, if we just compare OpEx per SCM, say, Q4, it was INR 5.69 per SCM. It has shot up to INR 8.19. Whereas, similarly, if you see gross margin, in fact, it has improved to INR 15.91 from INR 15.10 in the Q4. So there is nothing which is going to drastically change with respect to expenses. So the moment the volume picks up, particularly in PNG customer category, I think per SCM expenses will definitely drop down.

So what is your PNG now? In the sense, you gave us a total that you are 65% of normal in August. Can you give us some color on -- in terms of CNG where you are right now?

Yes. CNG, around 50%-odd we have reached.

Okay. Okay. And last question is on what is your spare capacity in your pipeline network in -- the safety pipeline network which you have built in? What is the spare capacity there? It is supposed to be I think at least 20%? So are you there, less than that, more than that?

No, I think 20% should be available, spare capacity.

Our next question is from the line of Jigar Shah from Maybank.

My question is, one, that we are hearing some changes in the APM gas price mechanism. Whether it is true and if you are able to provide any color? Then, I will ask another question.

No. We are not aware of any such development.

Okay. And the second is about allowing the entry of other operators in the mature markets. So do you anticipate in the Mumbai market any of the operator coming along because of the change in policy that is coming up now?

That will be a function of in what manner and when the network will open. So there are still some gray areas around it, which I think the PNGRB is trying to address. So we'll only come to know once the final regulations are notified. Yet to see in what manner and shape and what method new entrants are allowed in. So without that, it is very difficult to say right now.

Our next question is from the line of Probal Sen from Centrum Broking.

I have 2 questions. One, of -- what is the number of CNG stations in total that we are operating today? And of that, what percentage today is being operated out of OMCs? And what sort of commission are we paying them, if it's possible to share, as of now?

We are operating about 256 stations, out of which 184 will be with oil marketing companies.

Right. And sir, the commission is in the range of INR 3 to INR 3.50 as it used to be or has it gone up, sir?

It's about INR 3.50 to INR 4. The higher amount is payable in the main city and immediately adjacent areas. And for further out areas, it's closer to INR 3.50.

And this is per kg, right, sir?

Yes. Per kg.

Okay. Okay. And just a hypothetical question. Now obviously, open access, as you said, modalities and timing and all are yet to be decided. But as a very simplistic measure, if, let's say, 20% or whatever volumes have to -- are booked by a third party, given our net worth, capital employed today and if assuming it's 14% post tax, transportation cost has to be paid. What sort of per SCM charge will you be able to take from the third-parties accessing your network?

It's difficult to answer now. Again, tariff regulations are not yet notified.

Yes. Sir, I said if I assume a very simplistic -- the earlier normative levels just used to be, a 14% post-tax ROCE, if that is to be the norm, let's say. Any rough area -- rough idea you can give us?

I mean we haven't calculated any such rough number. If you look at it in such a simplistic way, then, of course, you can look at our asset base, our volume, 14% return, you should arrive at a number.

Okay. And any time lines you have heard from the peer or regulator in terms of when the notifications can actually come?

Nothing formally, but we have come across a few newspaper reports, which say that they are going to do this soon. Now we don't know how soon is soon.

We'll take our next question from the line of Amit Rustagi from UBS.

My question pertains to the regulations itself. Do we get an opportunity to present before the government? Because the government on one hand wants infrastructure development on the CGDs. And on the other hand, if this regulation comes, so how they're going to strike the balance? So if you have any thoughts here, if you can add something.

As of now, we don't have any formal plans to go before the government because there is a sector regulator in place. And whatever is to be done on this front will be done by the regulator through regulations and consonance with that. The center can only probably -- if at all they want to issue any policy directives under that, yes, they have that power. But as of now, we haven't heard anything in this direction.

Okay. And sir, my second question relates to last year BEST had a plan to add around 500 buses. So if you can give us some color how many buses have been added, and what's their plan now? Are they going to add more buses? Or it's just like they're done with it?

No, no, no. Out of those 500, I mean there were some complications because of the lockdown, but even then about 300-odd have been inducted and the remaining 150 will be hitting the road in this month and next month.

Okay. But sir, are they adding after this? Or this is just...

Yes. They have plans for adding on another 800 to 1,000 CNG buses, for which we have had 2 or 3 meetings at the highest levels in BEST. We have identified in which depots these buses will be deployed. We have given our plan for creating the infrastructure required there. And we are synchronizing our time lines. Only thing is, again, this lockdown and COVID has put a slight pause on those initiatives, but they are still on.

Okay. And sir, how many total buses they would have now after adding this 300 buses? And how much volume they would be consuming, if any rough idea?

With these additional buses in the couple of months, they will reach about 2,350. And whatever 800 to 1,000 more after that, but for that -- those tenders are yet to come out.

Okay, sir. And so total volumes, they are consuming?

They are consuming their normal, about 1 lakh kgs a day.

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

Just a couple of questions. One is a clarification. You mentioned the CNG stations are operating at 50% capacity in FY '20. These would include both owned and OMCs, that is total 266?

Yes. This is an average across all the stations.

Okay. And if you can just share some color on the underlying growth drivers, if you can share the trend in conversion to private vehicles to CNG over the past 4, 5 years, what has been the growth and other private buses and BEST buses, mainly in the CNG category? Just trying to understand the growth drivers and the growth rate for the last 3, 4 years.

For 3, 4 years, if you look at, there have been 3 main growth drivers. One is the autorickshaw segment. So about 3 years back or so, government had lifted the cap on number of permits, which they issue for autorickshaws. So that has led to a sustained growth in the autorickshaw numbers for a period of about 1 or 2 years. The second one was the advent of these aggregators, Uber, Ola, et cetera. They were offering very, very competitive rates. And with diesel becoming more and more expensive, they found that CNG is the preferred choice, unless they were deploying these big sedans, which travel outside the city, et cetera. So a lot of the aggregator's load is actually intracity. So that predominantly came on CNG. The third one was in the private car segment, where over the last 2 years or so, a lot of OEs are now coming up with new CNG variants, with factory-fitted CNG. So helping develop confidence among the customers that this is not any workshop or garage level retrofit, which is happening. This is right from the manufacturer. These are the 3 main segments where -- which feature growth in CNG. If you look at the state transport undertakings and municipal transport undertakings, last 3, 4 years, actually, there has been a pretty strong decline in volumes because -- for various reasons. But last 6 months or so, we have seen that trend reverse in the case of BEST, which is the largest fleet operator of buses. They inducted at least 500 more buses, and they'll be doing 800 to 1,000 more.

Okay. Okay. So sir, from an addressable market size, where would we be standing -- say, out of 100%, where would we be today from our potential?

You're talking of the CNG segment?

Yes, yes. On a very broad basis. An approximate number would do.

It would be somewhere between 30% and 35%.

Okay. So today it's 30% to 35% of what potential we can get?

Yes. That is the level of penetration today.

Our next question is from the line of Sujit Lodha from Birla Sun Life Insurance.

My first question will be, sir, what is -- is there any discount which you offer to BEST or is it at market price?

We do offer them a small trade discount.

And what would that amount be?

It is lesser than OMC, much lesser than OMCs.

Slightly lesser than OMCs?

Lesser than INR 1, actually.

Okay. Okay. Okay. Lesser than INR 1. Sir and second, so theoretically, if the open access comes, they could also be a threat to MGL volumes, right? And they can -- because most of the depots would be on their land, most of the CNG bus depots.

Yes. But we'll have to see in what shape and manner the actual regulations are notified. There is still this confusion about 20% capacity, et cetera, which we need to see how it plays out.

Okay. Sir, my second question is regarding the commercial volumes, where are we and what proportion -- I mean, what -- where are we in terms of percentage of normal volumes? And how do you see that segment because they would seem to be more worse impacted and probably will not come back to fore, at least for the foreseeable future? So what is your thought on that, on the commercial side?

This restaurant category, we have reached around 55% level. I mean if you compare let us say with earlier, say, February month volume, so somewhere around 55% we are. And in case of 5-star hotels or bigger commercial thing, somewhere around 40% level we have reached.

Okay. Okay. So sir, and what is your thoughts on that? I mean this segment would -- and what is the total consumption? I mean, what is the volumes if you will split it between restaurants and the 5-star hotels?

It is, say, around 0.098 for restaurant categories, mmscmd, whereas 0.050 for these 5-star hotels and these type of things.

So this is the current, which would be like 50% of the normal numbers, right?

No, no. This is the normal pattern which I had talked about. If you want current...

Okay. No, no. That's fine. That's fine. I'll calculate.

Okay.

We'll take our next question from the line of Manikantha Garre from Axis Capital.

Yes. Sir, I wanted to check from you, if there are any insights that you get -- that you are getting from discussions with OEMs on CNG vehicles, especially from the LCV or MCV side? I'm asking this because I hear that in Delhi, for example, Tata Motors and Eicher are talking about more than 20% growths in LCV segment. So are you hearing -- are you seeing such kind of growths in Mumbai also? That's my first question.

Well, that kind of growth is not there in Mumbai. And basic reason probably is in Delhi, LCVs are not allowed to play on diesel, whereas in Mumbai that is not the case. Having said that, Maruti is pushing their small commercial vehicle, CNG fuel, quite aggressively in our market also. And that is slowly picking up a bit of traction.

Understood. So related to this, only, I've actually discussed with an MCV -- CNG MCV, I think it is owned by -- it is of a Eicher make. That driver was telling me that beyond Borivali -- from Borivali till South only CNG MCVs are allowed. Is that the case? So that means there are regulations in place in Mumbai also, right?

Well, our understanding is if the commercial vehicle is less than 8 years old, it is allowed to run on diesel. So -- but if it is older than 8 years old, then it cannot run in Mumbai. It either has to convert to CNG or has to -- either the transporter buys a new diesel vehicle or moves it out of -- the older vehicle moves it out of Mumbai.

Understood. So this is applicable for both LCVs and MCVs or only MCVs?

No. This rule is applicable for all commercial vehicles. It is a rule in Mumbai.

Sure. And last question, if I can squeeze in, if you can provide us the status of the autorickshaws. Last quarter, you mentioned that 3 lakh autorickshaws are plying. And after the lockdown many of them actually have -- if there is an [ exact ] number if you could give, right? So how is the situation now? How much of autorickshaws have come back from the pre-COVID levels?

Well, our reading is approximately half of them are back.

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

The first thought is in terms of your gas sourcing. How much of your gas is on spot? How much on contract?

Currently, we don't have any long-term take-or-pay contracts. So it is predominantly from the spot markets, which we are going.

Okay. So that's pretty much reflected in your gross margins? And second thought is, in terms of your CapEx plan, do you anticipate any need for borrowings to fund it? And any plans to get into electric vehicle chargers?

No. We don't anticipate any need for borrowings as of now.

And any thought on getting into electric chargers?

Electric chargers?

Yes.

Nothing concrete on it, but yes, we do keep an eye on that space.

We'll take our next question from the line of Nitin Tiwari from Antique Stock.

Sir, my first question is related to the outlets that we have with oil marketing companies. So what is the contractual -- I mean, like term or obligation, if you might elaborate a little bit on that, the oil marketing company in terms of operating those stations? I mean what is the duration? And whether it's possible like in the light of third-party access that why marketing company might want to operate it themselves? So if you can like help us understand that a little bit, then I'll ask me second question.

So typically, our contracts with the oil marketing companies are signed for 3 to 5 years, and they keep rolling over the contracts. As regards whatever desire or which the OMCs may have to run their own CNG stations, again, that will be a function of how the open access regulations finally play because the guiding principle regulations are yet to be notified. And so it's really difficult to say at this point of time what shape -- what will happen in the future.

So out of 180 basically stations that we are operating, are any -- so what percentage of contracts would be perhaps expiring this year? Any number around that.

No, no. We don't sign a contract for each and every station. It is an umbrella contract, which we have with them.

Okay. Understood. Understood. And sir, secondly, IGL is in a litigation with the regulator on the basically determination of marketing exclusivity. So are you also a party to that litigation or it's only IGL?

Yes, I think we are also there.

So basically when this regulation comes and the access would -- comes in, that would also additionally be a part of litigation also if and when whenever it comes? Because the very basis of this regulation is dependent on the definition of marketing exclusivity and ending of marketing exclusivity. So is that understanding right?

Once again, it's very difficult to say unless the guiding principle is notified. We don't know what the PNGRB is going to notify. But if you just go on a draft of the regulation, which they have put out, yes, there could be some legal issues there.

Okay. And sir like, lastly, if I may squeeze in one more. It's only a bookkeeping question. If you can give me a split of industrial-commercial this quarter, and also CNG sales in kg, if you have?

This quarter sales volumes?

Yes, industrial and commercial -- the split between the 2.

Okay. Industry, 1 second. Industrial is 0.146 mmscmd, commercial is 0.058, domestic is 0.429 and PNG is 0.480.

Sir, CNG sales in kgs, if that's...

No, right now, whatever, I said everything in SCM terms.

No, no. I'm asking that, sir, what is the CNG sales in kg terms.

Okay. One sec. Yes. It is 0.351 mmkgd.

0.351?

Yes.

Our next question is from the line of Reena Shah from Ashika Stock Broking.

Hello?

Yes, please.

Yes. Sir, I wanted to know your gas portion proportion from domestic and imports.

Well, all our gas which goes into the CNG and domestic PNG segments comes from the domestically produced gas. And all the volumes, which go into the industrial and commercial segments come from imported gas.

Okay. Okay. Okay, sir. And sir, can you give me the pricing of industrial and commercial? What CNG prices -- what prices was there during this particular quarter, and what is currently right now?

The industrial and commercial segments, our selling prices are usually indexed to the predominantly used alternate fuels in that segment. So they typically change every month, depending on the prevailing prices of alternate fuels like fuel oil, LSHS, or LPG, LDO, et cetera.

So realizations were higher in Q1 and so are -- continue to be higher because other alternative fuels are still on a very higher side?

No. Realization for, say -- let us say, industry was, in fact, lower in this quarter as compared to previous quarter.

Sir, can you quantify it?

Yes. Industrial was around INR 23 per SCM as against INR 29 or INR 28.5 in Q4.

Okay. And what is currently running?

Current net sales in industry.

After the month of...

INR 25...

No significant change, but it has improved as compared to average of quarter 1.

Okay. And sir, what about commercial?

Commercial put together category, it was -- it is also down as compared to Q4. But hopefully, with 19 kg cylinder prices going up, we may see improvement in the period to come.

Can you quantity just -- I just wanted to know what prices were there.

Commercial was at around INR 28 as compared to INR 36 in the previous quarter.

Okay. Okay. And currently, there has been no major change? It's just like industrial, right?

Not significant change.

Our next question is from the line of [ Shubhechha Jain from AMS Wealth ].

Sir, a couple of questions. Just wanted a sense of about how is the labor situation? Like you said, you have a lot of contractual labor working for you. If you can throw some light on the labor situation.

Yes. We are facing challenges still, particularly the -- on the front of project work, either it is pipeline infrastructure to be laid or more particularly plumber category for domestic connections. Generally, these are migrant workers at place in both these contracts, and a lot of people have left for either UP or Northern states. Some of them have come back, but still we are facing challenges. We have worked out if we can pay some sort of packages, either reimbursement of pay or some monetary incentives for them to come back earlier, but there are challenges we are facing.

Okay. So sir, can I assume it'll at least take 3, 4 months for the situation to ease out? Or do you foresee it going to ease out much sooner than that?

Yes. It can take 3 months or before we reach a perfect normal level.

Okay, okay. And sir, will you be able to give us the cash position and receivable position as on 30th June?

Strength?

The cash position and the receivables as on June 30, 2020?

Cash position is quite compatible right now because you must be aware, we are in treasury surplus. As regards to overdues, some increase was seen, particularly in the area of domestic overdues because a lot of people had a tendency to pay even at either post offices or by using drop boxes, et cetera. So some amount of increase in debtors we have seen, whereas in industrial, commercial CNG front, it has been pretty okay. But even domestic, I think, things are -- will improve quite fast now hereafter.

Sir, will you be able to share the number?

Pardon?

Sir, will you be able to share the numbers for both cash and receivables?

We have INR 1,000 crores odd of treasury surplus with us.

Okay. Okay. And sir, receivable number?

Receivable number, right now, I do not have, but we can give you offline. No problem.

Okay. No problem, sir. Sir, just last question. In your results on -- in the Notes section, you have mentioned something about meeting the MWP target, and we've applied to PNGRB for extending the time line. So can you throw some light on this, what this is?

Yes. There are 2 types of targets we were expected to meet or those targets were set for us. One was domestic connection and another is something called inch kilometers of pipeline, so length of pipeline how much we lay in terms of inch kilometer parameter. As regards domestic connection, we have already achieved the target. So that's not a factor to worry. The only target which we have not reached is inch kilometers with respect to pipeline. And for that, some plan was already given to PNGRB, the regulator, in the pre-COVID era. And in view of the current challenges being faced, including, as you earlier asked about labor problems and other things, we have requested for further extension.

Okay. So sir, what was the target? And so where are we? We have achieved 50% or 60% of the target, if you can show -- if you can throw some numbers, if you could share some numbers around it?

Domestic connections, as we said, it was 26,000-odd and that we have completed, whereas inch kilometer...

Inch kilometers, we were at about 45% or so.

Okay. So we've achieved 45% of what we were to achieve, right?

Yes, yes.

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

One question is on the infrastructure exclusivity for the Mumbai region. You mentioned in your presentation last time that this is for 2020. I wanted to understand, one, update on this. Second, who is the body who will grant further extension of this? Will it be PNGRB or some other body?

Technically exclusivity determination is in the purview of the PNGRB. But however, those exclusivity regulations are under challenge in Delhi High Court. So it's really difficult for us to say anything much about it.

So what is under challenge, I'm just trying to understand? Because the period of infrastructure -- the definition of infrastructure exclusivity is under challenge or the period which is -- when you mentioned 2020 in the presentation, what's under challenge there?

What has been challenged are the vires of the regulations and the fact that the regulations are not in sync with the act. The act mentions a lot of things which the PNGRB is supposed to do before ending the exclusivity or before declaring any CGD as a common carrier, contract carrier, which the scheme of an act has not been followed. So the whole regulation themselves have been challenged.

Okay. And the second question was on the CapEx. Now when you guys are planning the CapEx, now there are -- when we look at CapEx over next 10 years, this is -- I put up a [ piece out ] today and -- which look at utilization over next 10 years. Things are going to change for sure. Time line is the question mark. For example, electric vehicles will come in. At some point of time the competition will come in from the new players in the present geographic regions that we are in. So when you calculate IRR for these projects, how are you thinking about -- so what are you baking in your assumptions, effectively? Say, are you putting some of the EVs coming in, some of the new guys coming in? And do you project a lower IRR when you put up a new CapEx now in Mumbai region, for example?

So one important factor to be noted here is whatever infrastructure we lay, irrespective of competition, even if competition heads in, competition will be with respect to gas, if at all, whatever share we have to lose. What it means that there is a network tariff payment. That is, if we can, in very crude terms pay some sort of rent for infrastructure, that will continue to be received by the company, even if the gas of the another entity is pushed into our infrastructure. So let us say, whatever, 12%, 14% post-tax return, those things will be anyway available on the infrastructure to whatever we wish to put in. So from that point of view, there is not much to worry about what is the additional CapEx we are going to incur. And in any case, the CapEx also enables us to face the competition because in case of let us say CNG, as many CNG outlets we open, the better service we will be able to offer to our customers.

So as I understand, you're saying that from an electric vehicle competition, it's too early to worry about, but on the new player coming in, you're anyways getting a return, which is higher than cost, so that's not a worry at all?

Yes. On infrastructure, we'll continue to get the returns.

We'll take our next question from the line of Ashutosh Chaubey from Centra Advisors LLP.

Hello?

Yes, please.

Sir, I wanted to ask that as likely you said that there has been word going around in multiple newspapers saying that the PNGRB regulation might come in probably by end of this month. So with respect to your CapEx planning, don't you think that we should rather delay this or defer this CapEx planning until unless you get a clear view if it is -- if it does come by this -- end of this month?

Yes. We have heard the earlier question. The answer is already provided. Irrespective of competition with respect to infrastructure, we will continue to get the return in the form of network tariff or whatever, compression charges.

We'll take our next question from the line of [ Falguni Dutta ] from Jet Age Securities.

Sir, I just had one basic question, which is our CNG pricing is done with respect to petrol and diesel prices, right? I mean it's done freely keeping in mind those prices.

Well, we do keep a look at alternate fuel price, but then there are a lot of other factors also which we consider while affecting any price change. We also look at cost -- whether we are incurring any significant additional cost because of any reason, be it adverse foreign exchange variation or any one-off expenses on some additional OpEx or -- we look at costs, and we also look at the market and what the competing fuels are priced at. And then we are -- depending on that, then we decide on how much to increase or decrease.

But there is no cap -- I mean there is no regulation that if we go -- if we suddenly increase our prices, keeping all that in mind, we will be asked to roll back? There's nothing like that, right?

No. In the CGD segment -- business in India, the selling prices to different segments are unregulated. They're all market determined.

Okay. And sir, the last question. Whenever there is a change in the petrol and diesel prices, like we've seen in the recent past, so with each increase, do we also increase our CNG -- I mean have we also increased our CNG prices with each such increase?

No. Because we typically have tended to prefer to give the customers some kind of price visibility and stability. So we typically change our prices -- we have been changing at least twice a year. But in some cases, 3 or 4 times a year also, we have done. But we don't -- at least we haven't been doing it on a daily basis like some of the oil marketing companies.

Okay. So at most, it has been 3 to 4 times a year.

Yes. But again, there is no restriction as such.

Yes, yes, yes. But sir, currently -- just this and I'm done. How does it compare with -- let's say, how does it compare with any one petrol or diesel price -- our CNG price as on date? I mean on a like-to-like basis.

CNG is selling at about INR 48.95 per kg, whereas petrol and diesel are, I think, in their 80s.

Yes. But would it go the same kilometer like -- would that parameter be same? I mean, if you were to compare it to that extent, I mean cost, for a person buying a CNG to run a kilometer and buying a diesel or petrol to run a kilometer, are these same or at substantial discount now?

For diesel, we take it as almost same. So pricing CNG works out about 35% to 37% cheaper than diesel. Whereas, for a petrol engine, CNG gives almost a 15%, 20% higher mileage compared to petrol.

Sir, could you come back again? I just missed you on both these.

Well the kilometers per liter of diesel and kilometers per kg of CNG are almost the same for a vehicle. But if a petrol vehicle gives, let's say, 10 kgs per liter -- or 10 kilometers per liter of petrol, it would give about 13 or 14 -- or 12 to 13 kilometers per kg of CNG.

Our next question is from the line of Abhilasha Satale from Dalal & Broacha.

Sir, I have a question on the gross margin. You said our gross margins have improved during the quarter. So seeing the current gas price trend and all, how do we see our gross margin going forward?

See, it will be dependent upon a variety of things. One is as regards gas price for CNG and domestic consumer category, it is expected that the price may either further fall down or could be steady. So it depends. We may share the benefits with the customers and something may be retained by the company. That's on the gas cost front for domestic and CNG. In case of industrial and commercial, the spot prices are anyway softened a lot. So a significant downward trend probably may not be seen. However, on realization front, there is a possibility some improvement could be there. So all these factors will have to be taken into consideration. Apart from this important factor to watch is ForEx element also because all gas purchase is in dollar-denominated terms, whereas our sales to each and every customer category is in rupee terms. So these are some important things which we need to bear in mind while talking about margin.

Okay. At current gas prices we anticipate [Technical Difficulty]? Or how if it has moved on quarter-on-quarter [Technical Difficulty] to just share that?

Yes. We hope so. And maybe all other things being equal, if volumes improve, then EBITDA margin may also improve because per unit OpEx will go down with the improvement of volumes.

Our next question is from the line of Abhijeet Bora from Sharekhan.

Sir, we have increased the CNG prices by INR 1 per kg recently and our now volumes are back to 50%. So can you just guide us that with these 2 things, what proportion of our fixed cost is being covered? Like, how much percentage -- like there was a higher per-unit OpEx or at what levels we are currently?

See, I mean, some color I can give it. You can observe that in Q4, the OpEx, which includes, obviously, the semi-variable and fixed cost, was somewhere in the region of INR 5.70 per SCM. Whereas, because the significant drop in volume was there, it had jumped to INR 8-plus per SCM. So maybe you will have to run some maths to work backwards.

Okay. So this is what fixed cost INR 8 per...

Fixed and semi-variable cost.

Okay. Fixed and semi-variable.

Which excludes basically gas cost and those elements.

Okay. And secondly, like taking the volume further from 65%, like, though it is dependent on market, how the COVID pans out, but can you just give some color? Like, as we have seen a sharp improvement in the volumes recently. So any further improvement will be dependent on like what autorickshaws are at 50%? Do you see any further chance of improvement or like it will be a difficult task to take it higher from current levels?

I think entire thing depends upon unlockdown procedure, what is being followed. Right now, right, up to 31st August lockdown is continuing. Depending upon ease announced thereafter, I think, we should see improvement in CNG.

Okay. And the volumes from cab aggregators, like how they -- that has improved? Like can you just give some color on that, like you gave for autos, like 50% are back?

Well, our discussions with cab aggregators -- they say that they are running at about 40% of their normal levels.

Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Gagan Dixit for closing comments. Over to you, sir.

Yes, yes. Thank you for all the participants and special thanks to the Gujarat -- sorry, Mahanagar Gas management for sharing their views on the company first quarter fiscal year 2021 performance. We take -- we then take this opportunity to thank Mr. Datta and his team once again. You can disconnect this call now. Thank you, sir.

Thank you.

Thank you.

Thank you, ladies and gentlemen. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.