Mahanagar Gas Limited (MGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of Mahanagar Gas Limited, hosted by Nirmal Bang Equities Institutional Private Limited. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. S. Ramesh from Nirmal Bang Institutional Equities. Thank you, and over to you, sir.

Thank you. Good evening, ladies and gentlemen. On behalf of Nirmal Bang Institutional Equities I have great pleasure in inviting all of you to this second -- third quarter FY '22 earnings conference call with the distinguished management of Mahanagar Gas Limited. Representing the company, we have Mr. Sanjib Datta, Managing Director; Rajesh Patel, Chief Financial Officer; and Mr. Rajesh Wagle, Chief Senior Vice President and Marketing. So without much ado, I will hand it over to Neha from E&Y who will read out the disclaimer statement, and then we will hand over to the management for the opening remarks followed by Q&A. Over to you, Neha.

Thank you, Ramesh. 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 the expectation contained in the statement are reasonable. However, the nature involves a number of risks and uncertainties that may lead to different results. The risks and the uncertainties relating to these statements include, but are not limited to risks and uncertainties regarding fluctuations in sales volume, fluctuations in foreign exchange, other costs and our ability to manage growth. I urge you to consider that quarterly numbers are not a reflection of long-term trends or an indication of full year results. They should not be attempted to be extrapolated or interpolated into a full year number. Thank you, and over to you, sir.

Thank you, Neha. Good afternoon, and welcome to the earnings conference call of Mahanagar Gas Limited for the third quarter of the financial year 2021-'22. I would like to thank all of you who have connected for our earnings call today. The outbreak of COVID-19 pandemic in 2020 and its second wave in April and May 2021 had resulted in significant disturbances and slowdown of economic activities. And the company's operations were impacted due to restrictions that were imposed in our operating areas. However, from June 2021, the situation has progressively improved as economic activities have returned to normalcy to a large extent. While this has been a welcome development, but the shortage in supplies of APM gas, coupled with very high spike in international spot gas prices during Q3 of FY '20, '21, '22, have had a deleterious effect. Geopolitical tensions in Ukraine, uncertainty of Russian gas supplies to Central Europe, issues with the Nord Stream 2 pipeline, low storage inventories and strong gas demand owing to cold and long winter in the Northern Hemisphere fueled the rise in spot gas prices, which reached USD 35 per MMBTU level in Q3 against an average price which was at around USD 14 per MMBTU during the previous quarter. With regard to creation of infrastructure, I will mention that MGL continued to expand its network in the existing license areas. During the quarter, 75,247 domestic households were connected, thus we have established connectivity for nearly 1.79 million households. We laid 87.47 kilometers of steel and PE pipelines, thereby taking the aggregated pipeline length to about 6,096 kilometers. We have added 2 new CNG stations, and with these we currently have 278 stations. We also added 77 industrial and commercial customers. And thus, as on quarter end we had 4,254 industrial and commercial customers. In respect of our Raigarh GA, we are connected to 49,389 domestic households, and 21 CNG stations are currently operational. During the quarter we laid 37.68 kilometers of pipeline in Raigarh GA, thereby taking the total length of pipeline to 319.61 kilometer. I am happy to announce that in January 2022 the company has achieved the cumulative inch kilometer target as per PNGRB's Minimum Work Program target for Raigarh GA. You may recall that we had already achieved the cumulative number of domestic collections target as on March 31, 2020. With this, the company has fully achieved its Minimum Work Program target for Raigarh. Possibly MGL is the only CGD company which has completed its Minimum Work Program against a bid out license area. This shows the company's sincerity in adhering to its commitment. In the recently concluded 11 CGD bidding round conducted by PNGRB, MGL has submitted its bid for Nagpur District, Chandrapur and Wardha District and Baloda Bazar, Gariyaband and Raipur districts. The bids were opened on 14th of January 2022. And despite having put an aggressive bid, we have not been successful in securing authorization for any of the 3 GS for which we had put in our bids. MGL hopes that the 8-year minimum work program commitment basis which the authorizations are being won by CGD entities get fulfilled, else the very objective of award of such authorizations would get defeated. Coming to MGL's operations, average sales volume for 9 months ended 31st December, 2021 is 2.94 mmscmd, whereas it was 1.989 mmscmd in the corresponding period last year. There is an increase of 48.02% in the overall sales volume compared to previous year 9 months. Average sales volume for 9 months ended 31st December, 2021 of 2.94 mmscmd consists of CNG volume of 2.061 mmscmd, domestic CNG volume of 0.464 mmscmd and industrial and commercial volume of 0.419 mmscmd. Compared to the previous year 9 months, sales volume in case of CNG has increased from 1.216 mmscmd to 2.061 mmscmd, which is an increase of 69.47%. In case of industrial and commercial sales, volume has increased from 0.306 mmscmd to 0.419 mmscmd, which is an increase of 37.4%. However, for domestic P&G sales volume has decreased marginally, mainly due to reduction in work from home from 0.467 mmscmd to 0.464 mmscmd, which is a decrease of 0.63%. Current 9-month EBITDA is INR 709 crore compared to previous year 9-month EBITDA of INR 618 crore. EBITDA margin is at 28.66% for 9 months compared to previous year 9-month EBITDA margin of 43.06%. Net profit after tax for the 9 months is INR 455 crore compared to net profit after tax for previous year 9 months of INR 407 crore. During the quarter, government notified price of domestic natural gas was revised from USD 1.79 per MMBTU to USD 2.9 per MMBTU with effect from 1st of October, 2021, and was further revised to USD 2.97 with effect from 1st of December, 2021. This is an increase of 66%. Further, APM allocation for priority sectors, which was based on COVID-19 impacted period in the first half of the year resulted in substantial shortage as priority sector sales volumes ramped up very fast since July 2021, and the gap was very high during the quarter. Thus, such gap during the quarter had to be catered through purchase of spot gas ranging from 12% to 16% of priority sales volumes. Spot gas prices have remained very high due to various global factors discussed above. Thus shortage of APM gas allocation, increase in APM price and unprecedented increase in spot gas prices, all have substantially put pressure on the margin for priority sectors during the quarter. The company undertook upward revision of CNG and domestic PNG prices 4x during the quarter from INR 51.98 per kg to INR 63.50 per kg and from INR 30.40 per SCM to INR 38 per SCM respectively. Further, in January 2022, we have revised CNG prices to INR 66 per kg and domestic PNG to INR 39.50 per SCM. In case of industrial and commercial supplies, high RLNG costs had put pressure on margins as industrial and commercial sales prices linked to alternate fuels did not have similar increases. The company has partially recovered the increase by charging premium over alternate-fuel-linked prices. The company has entered into a contract for purchase of [ firm ] gas during the quarter for a period of 18 months to reduce dependence on spot gas. Coming to quarter-on-quarter comparison, average sales volumes for Q3 FY 2021-'22 is at 3.303 mmscmd and is higher than previous quarter average of 3.124 mmscmd. Average sales volume for Q3 FY '21-'22 of 3.303 mmscmd is consisting of CNG volume of 2.392 mmscmd, domestic CNG volume of 0.473 mmscmd and industrial and commercial volume of 0.438 mmscmd. There is an increase of 5.73% in the overall sales volumes compared to previous quarter. Compared to the previous quarter, sales volume in case of CNG has increased from 2.234 mmscmd to 2.392 mmscmd, which is an increase of 7.06%. And in case of domestic, it has increased from 0.451 mmscmd to 0.473 mmscmd, which is an increase of 4.85%. In case of industrial and commercial sales, volume has marginally decreased from 0.439 mmscmd to 0.438 mmscmd, a decrease of 0.11%, which is mainly due to selling prices of industrial and commercial segments at premium. Current quarter EBITDA is INR 103 crore compared to previous quarter EBITDA of INR 302 crore. EBITDA margin is at 10.03% for quarter 3 compared to previous quarter EBITDA margin of 36.35%. Net profit after tax for the quarter is INR 57 crore compared to net profit after tax for previous quarter of INR 204 crore. Though profitability for the quarter has not been commensurate to the company's track record, but we feel that the situation on the gas availability and gas pricing fronts will improve in near future and the company will be able to deliver better results. Confidence in our ability to deliver better performance has prompted the company in declaring its interim dividend at INR 9.5 per share, which is in line with interim dividends declared in previous financial years. 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 Aishwarya Agarwal with Nippon India.

Just 2 questions. One is, how do you see this APM gas prices, which we expect to increase from 1st of April to, say, $6. And maybe from 1st of October again. So with such a steep price hike in the APM gas, how do you think that you will be able to cope up? That is one. And the second is, the -- this long-term gas which we have contracted, what's the price of that gas and what's the volume?

Well, the APM gas price is expected to go up on 1st April and 1st October of course. But if you look at the quantum of the expected increase, I mean it is -- we are expecting that the current high levels of RLNG which are prevailing, the drop in them over the next 1 or 2 quarters will probably compensate for this increase in APM. So on an overall weighted average cost of gas basis, hopefully we don't see too much of an increase. And if there is any increase, we can now pass that through. And the other thing is we are also hopeful that maybe in the coming couple of months or so, the APM allocation would be revisited and revised. So that has been pending for a few months now. Now once that happens also, it will reduce our weighted average cost of gas because our actual sales in the CNG and domestic PNG segments has increased quite significantly compared to the old allocation level which we have for this APM gas, as a result of which once the government formula for reallocation kicks in, we will get substantial relief is what we believe. As regards to long-term gas, the pricing is I mean confidential, actually we cannot really disclose the price formula.

Quantity is around 0.15 mmscmd for the new contract which we entered during this quarter. And we already had around 0.1 mmscmd earlier. So roughly it is 0.25 mmscmd is the term gas contract. The contract which is entered in this quarter is for around 18 months.

Sure, sir, this is very informative. Now, see our -- the gas price hikes which we have taken and are progressively of the APM gas price further increase, our not increasing the gas prices, the CNG prices are dependent on that our spot -- either the spot prices goes down or we start getting this incremental gas which you have contracted. So when do you anticipate that gas will start coming to you or it has already started, this long-term gas?

Yes, the long-term gas which you have contracted has already flowing.

Already started in December.

Which is not long-term, right.

It's not exactly long-term. It's, yes, mid-term.

Yes. Yes, 18 months contract. So sir, despite that cash coming in, we end up increasing the gas prices. So I mean that means you've been able to replace 100% of your spot procurement for the CNG and domestic PNG with this term gas?

No, no, not really because you see the domestic gas, which we get for CNG and domestic PNG as per the government circulars, that gets reallocated every 6 months. And CGD entities are supposed to get whatever is the prior-period sale level in these 2 segments, they are supposed to get that much and a little bit more in the coming forward 6 months. So considering that, there is a technical difficulty in contracting long term or medium term also from take-or-pay gas for these segments because the minute the reallocation happens, then there is a risk of take-or-pay on your firm contracts, which you have to do, we have to take a bit on spot, which is -- which doesn't attract take-or-pay or -- for which our exposure is a maximum for 1 month. And also you have to optimize on the pricing by periodically entering into tranches of firm medium-term gas, which we continue to do.

Sure. So, sir, I can see that around 2.9 mmscmd gas is meant for the CNG and domestic PNG. Out of 2.9, how much APM we are getting at this point of time?

Around 2.5.

Okay. So 2.5 is what we are getting, and 0.25 is the additional, this midterm gas. And the remaining is spot.

Yes. But you can't directly assign this to priority or nonpriority. This is what we are saying at the company level we have the firm gas. Now having said that, we have taken almost 4 price increases in the quarter, and those were step-up price increases. And full effect of that will come in the subsequent quarter, that is Q4 as well as in the first quarter of the next year, okay? So there will be a good amount of recovery of the costs which have already happened and for the full volume for Q4 and Q1 of the next financial year. Okay. So that will also help us in further improving the profitability. So there is some impact due to price -- APM price getting revised. Also looking at the past trend, it is all up to the government to decide how much PPM price they will declare. Not necessarily that it will be based on the formula-drive. They can have a call on what is to be the final price. So we have to wait and watch how things pan out in the month of April and maybe subsequently in the month of October 2022.

Sure. And sir, when you say that the APM gas reallocation needs to be done. So [indiscernible] that it is being delayed, supposed to happen in the month of November, we are in February now. It hasn't happen yet, and you guys are suffering with a low APM supplies. And tomorrow if there is reallocation, which sector is likely to suffer? And someone has to give up because the APM gas volumes are not increasing.

While the APM domestic to gas volumes may not be increasing, I think the government is trying to arrange some mechanism through which the CGD companies can get their requirement if required by pulling in a little bit of market price gas into the APM price, APM gas and give it to the CGD at a relatively lower blended cost. So even if that happens, then that will be much cheaper than the price of LNG, which -- and be it spot or be in term.

Sure. And I got -- and the last question is, how do you see this EBITDA per SCM because we have seen you people were doing some INR 12 of EBITDA per SCM, which has gone down now to below INR 4, so where do you see it going to -- not in this quarter, again, this quarter will be a transitory quarter, the next quarter, from April onward.

It will be a result of multiple factors. But having said that, there will be profitability improvement due to the price rise already taken. Okay. So it will definitely improve compared to the present level.

Again, how much exactly, it's very difficult to add a number to it, because a lot of factors result in that final number. So -- and the factors are basically very difficult to predict or pin down.

Perfect. And one more question. I would like to…

Sorry to interrupt. Mr. Agarwal, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn.

Sure.

[Operator Instructions] The next question is from the line of Anubhav Aggarwal with Credit Suisse.

One question is on the industrial segment. There are 2 variables here for profitability to improve here. One is reduction in LPG spot prices which has already started coming down in the current [ quarter ] The second is, you guys passing through, or taking more price increase in the industrial segment. So just checking that over this quarter have you taken more price increase in the industrial segment which is helping your industry profitability?

You mean that stock Q3?

Q4, Q4. Basically Q3 we have already seen the number. I'm just trying to say and the profitability was significantly lower in the -- maybe my number suggests it was a big loss in the industrial segment. So just trying to understand that after Q3 have you guys been able to take further price increase in this portfolio?

So as you said, the RLNG prices are coming down. So either we will maintain or we will reduce if prices go further, okay, because it will be a trade-off within volumes, if you see my Q3 volume because of the premium charge have gone down compared to Q2, okay. So looking at the overall profitability, we will balance out between the price and the volumes. So we may either many or reduce the LNG prices, RLNG prices further down from the levels today.

But as of now, sir, you haven't, let's say, whatever the Q3 prices, as of now you haven't changed, let's say, from end of December to February now you haven't changed the industrial pricing right now.

Yes, we are maintaining whatever the price in the month of December currently. We will be reviewing it further and…

Current pricing, actually, I mean we really can't discuss on the call questions pertaining to the quarter or…

Sure. That's fine.

The only other comment I can make is, if you look at the overall trend of oil prices, they have been creeping up higher. So that is helping us in getting a better realization of our I&C sales.

Yes. Valid point. Absolutely. Second question I had was on this mobile refilling unit, just to get it right. Is there only one unit right now on the ground? Or is there more than one unit on the ground right now?

Right now, we are on the verge of giving out LOIs for at least 3 more mobile units. This should happen in the next couple of weeks. That number could go up to maybe 5 or 6, I mean time will tell. But as of now, we are reasonably sure that at least 3 more LOIs we will be giving to set up these kind of units.

And this 3 will be for which GAs? This will be for Mumbai, Thane or Raigarh GA?

No, we are not looking at Raigarh right now because the advantages of these MRUs accrue where you have very little space and you can't put up a conventional station there and where demand density is high. So that -- those conditions are only prevalent in Mumbai and its surrounding areas. Thane and Navi Mumbai, et cetera. So these are the geographies where we are targeting to place MRUs. GA 3 is relatively easier to get land and we can open up conventional stations there.

Fair point. But once you give out LOIs for the MRUs to be on the ground and functioning, wherein could that be -- is that a 6-months process or 3-months process?

Yes, I think that could be a fair estimate because a lot of regulatory approvals are required to get these operational. So once we give the LOIs then the people who are setting this up will process their approval, they'll start the procurement of the equipment, et cetera. Then of course the assembly of the MRU is much quicker compared to construction of a conventional CNG station because that will happen in a workshop. But the critical part will be on the regulatory permissions for setting up the station.

Sure. And just last question, sir, in son the EV buses. The new policy of the state government, basically them targeting 100% of the new buses by 2027 as EV buses, will that -- how significantly will that impact growth for us? I think last time you talked about 10% of your total volumes come from the bus segment?

Yes. But then if you look at that announcement carefully, BEST is talking of increasing the fleet. Now 100% of the fleet, we don't know, not sure. Yes, they are talking of getting in a lot of EV buses, but they are over and above the current 2,400-odd CNG buses which they have. And we believe that if BEST actually goes to those kind of numbers, the logistics will be very difficult to work out because charging that many buses, looking at the amount of time it takes to charge and the impact on the operations because ideally BEST wants all the refueling or recharging to happen between 12 midnight and 5 a.m. so that the buses can be on the road for 18 hours, remaining 18 hours, which is just not possible in a EV scenario. So the number of buses on the roads, if they go for EV will actually be only about 70% of their fleet size, whereas when it's on CNG, it's 100% of the fleet size on the road every day. So operational issues are there. Having said that, whatever diesel buses they have right now, they will definitely go out of the system. And the benefit of that will accrue, we believe, both to CNG and EV. Going forward, again, depending on the subsidy levels involved and sustainability of maintaining or giving that kind of subsidiary, we believe that the market will be shared both between CNG and EV at the expense of diesel.

Sir, just one clarity on our response. How many out of this 2,400 total CNG buses today, how many new CNG buses BEST is adding each year, sir, please?

Could you repeat your question, please?

Yes. So out of the total CNG business BEST has today, how many new CNG buses they are adding to their fleet each year, roughly?

In Q3, around 70 buses are added.

But on an annual basis?

Annual. Look, currently BEST is inducting another 200-odd buses. They had given out a tender for 500 buses 7, 8 months back, out of which about 300 have been delivered progressively -- there has been a bit of a problem on the OE side because of lot of issues of availability of those chips and cylinders, et cetera. But apart from these additional 200, BST is also actively considering converting their full fleet of about 800-odd existing diesel buses to CNG. So currently, the CNG bus fleet of BEST is about 2,400, and they have 800 diesel buses and about 200 EV buses right now. So that is the total fleet size.

The next question is from the line of Vishnu Kumar with Spark Capital.

Sir, if you could just help us understand out of the 3.3% that you've done this quarter, 2.5% you mentioned is APM. For the rest, what was the spot and some medium-term or long-term volumes you had? And after taking the new contract, what would the volume be this quarter?

Roughly 50-50. Whatever you see, other than priority sector, volume of around 0.43 to 0.45. 50% is firm gas and 50% is spot.

So last quarter was 3.3% and 2.5%. The 0.8% gap you're saying 0.4% going forward you will have -- or at least 0.4 you have some contracts, rest 0.4% is spot?

No, 0.25 is term contract, rest is spot.

Okay. Rest is spot. Okay. So for the commercial, would you be -- I mean, why are you not tying up any gas unlike I mean -- for commercial, your point is why is there no contract for the point for 0.4 mmscmd.

We do not attribute the tenure of the contracts to different market segments as such. Now for -- so if you look at it in one way for the industrial and commercial contracts, since they are to be necessarily set by market price, yes, if you attribute all the firm gas for them, so majority of it, we are buying at firm. The issue with CNG and domestic PNG is that the government has issued a 100% allocation of your -- whatever is your sales level. Given that policy or whatever, even though some implementation delay is happening for the first time in this time, it is difficult to take a call to sign a medium-term contract for this because we need to keep in mind all these medium-term contracts come with a firm take-or-pay clause. So if we contract on a firm basis or even 1.5 or 2 years to feed the CNG and domestic demand. And in case there is an increase in our allocation, which is current government policy, be it -- I mean let it come from curtailment of APM gas to some other sector or let it come from pooling of gas by the government. It will put us at a risk of take-or-pay on these firm contracts because we will be having more firm gas than we can sell. So that is the balance which we have to try to maintain.

Understood. So 0.4, assuming everything is in future APM also out of 0.4, this commercial and industry, 0.25 is what you have contracted and 0.5 will remain as spot.

No, nothing firm as 0.5 will remain as spot-only or anything. But we keep -- every month we keep looking at the market, we test out, we see, we look to -- we get offers for a medium term, 1-year, 2-year gas, et cetera. We look at the spot prices. We look at what is happening on the exchange and we try to balance out. So in this process, till now we have signed 2 such medium-term contracts at firm market price gas with take-or-pay.

Got it, sir. On the commercial and industrial, what was the price increase that was taken in the December quarter? And would it be right to say that because your spot prices are way higher than probably the price hikes that would have taken, would there be probably a remarkably low profitability or negative profitability there? If you could help us understand on this side. On the price increase and the profitability.

See, one is the prices linked to alternate fuel. And during the quarter we have taken a premium in the range of 10% to 30% depending on the different type of customers. Yes, you are right, there was a pressure on the margin. And at times when we -- our LNG was very high price, we have gone into marginally negative, this is also for SCM.

Okay. Rough indication, would it be possible, sir, if you could say that this -- any indicator margins you would have probably earned in this segment and what would be now on a per SCM basis? Anything that you can help us understand to understand for us the magnitude of reversal.

Actually, that is again difficult because that will involve allocating term and spot gas to different segments. So this don't at a company, so I don't know if it's possible to…

But at least -- but one thing you're confirming is that this segment was negative for us this quarter?

There are different pricings applicable to industrial and commercial segments. So there are some categories where there are profits and somewhere there could be because they are linked to different alternate fuels. But overall, we are currently in the [ margin ].

Got it. And one question, if I may, sir. This is about the…

Sorry to interrupt. Mr. Kumar, may we request that you return to the question queue for follow-up questions.

Yes. Sure.

The next question is from the line of [ Kishan Mundhra ] with [ Antique Research ].

So in the notes of accounts, you mentioned about Ministry -- MOP is issuing guidelines under trade discount. So sir, if you could throw some more light on the -- on what was the demand raised by OMCs? And how much was accounted for you in the books of accounts.

The original demand before the Ministry issued the guideline or Ministry came into picture was quite substantial. We will not be able to disclose the number. So from that number, it has been brought down to almost 35%, 40% level. Of course, the numbers are different for a different class of cities. So there are different rates applicable to metro cities, B-class cities, C-class cities. So Ministry has given a guideline with respect to different cities what should be the level of trade discounts, okay.

Okay. So I didn't clearly understand the 35%, 40%. So let's say the OMCs demanded prices…

We had…

Trade discount would to be increased to, let's say, INR 10. So you brought it down to, let's say, INR 3.5, INR 4.

Could you [indiscernible]?

No, let's say OMC has demanded that trade discount to be increased to INR 8, but you are saying that you have brought it down to 35%, 40%. So what is the issue about? Because in the notes of accounts you have mentioned that discussion has been given back to PNG to take some decision.

Right. So you're saying if it was INR 100, it has been brought down by around 35% by the ministry itself. The guidelines is like that. And depending on the different class of cities, the rates are different.

Okay. Okay. And sir, where was this provision accounted for, sir? Is it in the other expenses? Or is it in the gross margins? Where was it?

This is -- trade discount is allowed in the deduction in the top line. It was reduced from the top line.

The next question is from the line of Nitin Tiwari with Yes Securities.

My first question is a bookkeeping one, if you can give me bifurcation of payment…

Speak a little louder.

Yes, if you can please give me the bifurcation of industrial and commercial volumes.

You want the industrial and commercial volumes of Q3?

Yes, sir.

Commercial is roughly 0.17 to 0.18, and industrial is around 0.26.

And sir, next question is basically a clarificatory one. So what you just mentioned about OMC trade discounts. So you said that it has been brought down by 35% and not to 35% of what was demanded, right?

Yes, yes. By 35%, not to 35%.

Not to. And that is also I'm giving an indicative figure, it is different for different cities because Ministry guideline is taking about pan-India settlement of this issue, it is not only pertaining to MGL as a single company, it is between OMC and all other [indiscernible] put together. It's a pan-India intervention which is on -- based on that guideline there is an issue of [indiscernible].

Right, sir. And sir, last question, sir, what is the level of penetration when it comes to GA 1, 2 and 3 for us because mostly after 11th of bidding I think this is what we are looking at in terms of allocation that we have with GA 1, 2 and 3. So what is the level of penetration in terms of CNG and basically PNG when we look at these GAs that we have, if you can help us with that understanding.

GA 1 and GA 2, we should be roughly at about 35% penetration, I mean 35% to 40% depending on which market segment you are talking about. On GA 3, the penetration level would be maybe just about 15%, 20% right now. So there is still a long runway of growth available of residual potential in our existing GAs itself.

Right. Sir, if you can just like throw some more light on this issue of penetration. So when we say 35% to 40% penetration, then if you can help us understand that what is the level of penetration in CNG? And how do we arrive at that figure of, say, 35% or 40%? I mean, are we looking at the total car park that we have or the total vehicle operation that we have in GA 1 and 2 and out of that how many are CNG. So is that how we are like calculating the penetration level?

Look, it depends on which market segment you're talking about. If you're talking about CNG, what we do is we -- total of the population of all classes of vehicles which historically we have seen any conversion happening. So conversions have happened in private cars, so all private cars was part of the universe. Auto rickshaws, taxis of course are there. Then there are light commercial vehicles, medium commercial vehicles, heavy commercial vehicles, buses, et cetera. So all that population we consider as potential. Out of that, if we count how many have been converted, currently the number is, I think, almost 8 lakhs or so. This whole vehicle potential number comes to around INR 20 lakh or somewhere around there INR 18 lakhs, INR 20 lakhs. So roughly the penetration, if you foresee it is 8 by 40 or whatever. What we exclude from the potential are those classes of vehicles which traditionally have never come on CNG. They could be these two-wheelers, then tractors, these big multi-axel trailers and vehicle like that. If you look at the domestic household segment, when we talk about penetration, currently we have reached almost, I think, 16-odd lakh households. And in our estimate, there are about 35 or 36 lakh technically feasibly reachable households. So if you look at that, we are on some 40, 40-odd percent penetration level is there in that segment. If you look at the Industrial segment, I mean in Mumbai so, there is no more industry coming. So whatever is there, we might have reached. In the commercial [indiscernible] 5-star category, our penetration is almost 95%, barring 1 or 2 of these properties [indiscernible] areas where we don't have pipelines yet, we have got gas in all the -- all these customers. If you look at the commercial A segment, which are the small restaurants, et cetera, today we have connected more than 4,000 of them. And in our estimate, there are about 10,000 to 12,000 total potential and feasibly where gas can be given. So again, roughly we're talking of 40-odd per penetration. This is how we estimate the potential. Of course, these numbers can go up plus/minus 5%, 10% here and there because there are difficulties in estimating this. We of course know how many customers we have on board today, but in the estimate of the potential side of the universe, so that would be a slight 5%, 10% approximation.

Understood, sir. Sir, while your point…

Sorry to interrupt. Mr. Tiwari, may we request you return to the question queue.

Just a continuation if you may just allow, please, just a continuation of my previous question. I'll just take a minute. So, sir, your point is well-taken on the PNG side of penetration, but when it comes to CNG. So is it not like more prudent to look at it from the perspective of number of stations we can put and number of stations we have already put. So what I'm trying to get at is that are we fully penetrated in terms of the number of sites that we can have in GA 1 and 2?

No, no. We always look for adding more and more stations wherever and how -- especially in GA 1 and GA 2 where our station throughput is relatively high compared to industry average. And what we have seen is the more stations we put up in the locality, demand uptick is there. Last 1 or 2 years, we have been opening many more stations compared to the year before that. And of course it's a combination of many things, diesel prices going up, et cetera, et cetera. If you see, our historical penetration in the commercial vehicle segment was negligible. But today, that is one of the fastest-growing segments in the CNG subsegments. So many OEs are coming up with CNG variance of their goods vehicles which previously were never the case. So in Mumbai and the immediate surrounding areas, if you create the infrastructure, we believe that the demand will come, be it from private car, be it from commercial segment, be it from public transport.

[Operator Instructions] The next question is from the line of Vikash Jain with CLSA.

Wanted to check for this spot LNGs, that I think 12% to 15% had to said using spot LNG even for the priority sectors. What was the average cost of spot LNG which was used in place of the domestic gas which you should have got.

During the quarter, the price ranged between around $20 to $28.

So an average about $25 for the quarter is what [indiscernible].

It went up to $28 per mmbtu roughly.

Okay. Okay. And the average you fed was about 12%, 13% for the quarter. And that is what you have needed for the priority sector. Yes?

Sorry, average?

The average usage, I mean the priority sector demand, 12%, 13% of that had to be fed by spot LNG, right?

Correct. Correct.

Okay. And so with this -- I mean, for this particular quarter where it looks like already in February most likely the solution is unlikely to come before March. So the problem will only get solved when you have a higher base for this half using for the next quarter. So will the blended cost to be lower because of the contracted volumes which would have come in later? I mean, the contracted volumes would have been essentially lower priced, right? I mean, that would have come in later.

You are right. The term gas was contracted in the latter part of the quarter. And as you know, currently the prices are tapering down as far as the spot gas is concerned, correct?

Okay. So both of those should mean that -- and should we assume that this quarter perhaps volumes being higher that somewhere around 15%, if you don't get incremental allocation would still be fed by spot, that maybe hopefully at a lower price, spot or term whatever.

Yes, 15% can be a reasonable assumption.

Yes, yes. Okay. No, what I mean is that potentially…

Sorry to interrupt, Mr. Jain, may we request that you return to the question queue for follow-up questions.

We are just discussing the same thing. So I mean I'm just asking that for this quarter at least we can assume that your pricing for commercial and industrial customers would be based more on spot or not taking the advantage of the long-term contract or contracted volumes? Is that a fair assumption?

See, pricing is linked to alternate fuel. Depending on the costs, how much premium to be charged that is when the management helps to take a call. And depending on the contract type as well. With respect to APM I would only say that the price rise has happened in the last quarter on a staggered manner. So at the current level of pricing in CNG and domestic, this Q4 will be fully benefited at the latest price. And also we have taken price rise in the month of January as well if you see. So currently our price for CNG is INR 66 per kg and domestic is 39.50 per SCM, okay. Whereas in the earlier quarter, it has gradually increased. So whatever INR 11, INR 12, we have increased in CNG has gradually increased in the last quarter. For current quarter Q4 we'll have a full benefit of that higher price now.

The next question is from the line of Nitin Sharma with Moneycontrol Research.

Two quick questions. First of all, what led to the increase in other expenses? Is there a onetime item there? And then I have a follow-up.

See, if you look at my volumes compared to the earlier quarter, the volume-linked expenses have gone up like power and fuel, transportation costs, dispensing charges et cetera. So mainly it is volume-linked. And in power and fuels there are some tariff increase also. So mainly that -- and there are instances like we have increased the CSR expenses this quarter. So it's a mix of a couple of things. Primarily it is volume-linked expenses which has gone up.

Right, right. Second question is that, can you please throw some light on what went on with the 11th round of bidding? And whatever progress have been made with regards to the open access discussion that was happened last year?

Well I think in the opening speech the managing director had mentioned the 11th round. We had bidden -- we had put an aggressive bid in 3 GAs. But what we discovered was this time the bidding levels which the industry had, we were way, way beyond the extremely aggressive levels which were prevailing in previous rounds. So even though we had put in an aggressive bid, we could not succeed in getting any of the GAs there.

And on the open access discussion with the PNGRB that started last year, last last year. Any progress on that?

No, because that matter is currently sub judice, so we really can't talk much, it's sub judice in Delhi High Court.

[Operator Instructions] The next question is from the line of [indiscernible] with [ Aquarius ].

Sir, can you just revisit on this quarter of Q3 you said that you have within 2.5 mmscmd of APM gas which you got it. What was the breakup for the remaining? Is it -- I understood it's 0.5 within spot. And 0.1 is your long-term volume?

No, do you have a question or -- 2.5 was what was available…

Yes.

Remaining was a mix of term and spot.

So what was term and what was spot, sir?

Term was around 0.25 mmscmd and rest was spot.

And this 0.25% will go to 0.35% in this coming quarter, right?

No. No.

You mentioned that you have done one more term contract, medium-term contract, which is there, which around 0.1 mmscmd.

So it was made during the quarter. Including that it is 0.25, term gas was 0.25. We may go for further contract, that's a separate aspect altogether, but already contracted is 0.25.

Okay. So in Q4 it will be 0.25 further term contract, then remaining whatever will be the spot volume.

Yes, unless we take a call not to do anything further, and we may do also. So that depends on how things move out in the fourth quarter.

Sir, another last -- one question I have. Sir, when we analyze the results of yours related to peers, particularly IGL and all have similar kind of a pricing pressure, right, I mean this input cost pressure. It seems that you have done a relatively higher price hike compared to the others. But at the same time, if you see, there isn't significant pressure, so [indiscernible] whatever the missing element you have, this shortfall of the APM is different across the plane, someone is -- might getting in the 5% shortfall, someone is getting in an 18%, 20%?

That is something which we are not actually privy to. Our understanding is as per the government guidelines it has to be nondiscriminatory across all CGD companies, only exceptions being if somebody in the northeast and not connected to the gas grid, et cetera. That's a different -- they can have a different percentage depending on the availability there. But otherwise, all the CGDs are required to be treated at par. As far as grant allocation and pricing is concerned, only the transportation cost can vary depending on the location of the CGD and the source of gas.

Okay. Got it, sir. Sir, just one more, if you allow me. So do you get any support in support in sourcing from GAIL? As a promoter, do you get any help from the GAIL in terms of the sourcing of LNG?

Not really. We are both listed entities and all transactions are at arms length. And as far as APM is concerned, the GAIL is aggregator and distributes on behalf of the government…

The government normally, so the allocation is coming from the government.

The next question is from the line of Amit Rustagi with UBS.

Do you think that the support of the government for this sector is diminishing given the entire CGD rounds have been done. And within that, basically we have not seen GST on natural gas, and they have not talked about natural gas in maybe 6 months, any of the policy framework. So you think that the challenging times are ahead for the sector?

Government policy is in government's hand. It's really difficult for any CGD company to say what is going to happen in the future. But having said that, in whichever way things go, I mean, if there is no -- if there is a large shortfall in availability of gas and at least we don't have the disadvantage of serving many, many more virgin GAs and putting a huge amount of CapEx, et cetera. So in that way, one point of view is we have a bit of lift compared to some other CGDs because we already have got infrastructure on the ground and with marginal last mile CapEx we can get incremental volumes, so. But again, it's -- only time can tell and what direction the government will take.

We can -- I think we can wait for the report of the Energy Transition Advisory Committee which has been constituted and which is likely to give its report in 6 months time. So that could be a fair indicator of things to come.

But sir, will that delay your gas allocation further because November there was no allocation made and we are looking for allocation in May now. So if the transition report doesn't come, we will continue to hinge upon the volumes which were done in 2021. That can in fact put further pressure.

The allocation you are talking about is a more near-term. And I think there is some discussions going on in government on how to ensure enhanced supply or protect the quantity in the CGD sector. But you made a larger point that whether the government kind of the -- whether government is giving -- encouraging this sector, whether that is going down. So that is a more kind of a long-term thing, which we -- which is totally possibly dealing with the near-term thing the allocation for the next quarter or -- that is much more immediate. So we have to look at it under 2 different buckets.

Also having talked with so many CGD on the last 1 or 2 years, to expect that government will take a stand is very, very unlikely. So many private players have entered the field. So I think government will have to think price before taking any such measures. And when it comes to GST…

But they're not talking about it actually. Unfortunately, like if you look at the entire media, so if you look at the media, 1.5 year, 2 years back, it was dominated by the natural gas minister was going to allocate and they were running CNG buses. They were talking highway, gas highway and all that. But in the last 6 months we have not heard any of these things. And on the top of it, you have this delay in the gas allocation. They're not -- basically price hikes are coming, and we are seeing the pressure on the margins across the board. So this is clearly indicating that the government after getting all the GAs being allocated now they might withdraw the support given to the sector.

Yes, the other way to look at it is, yes, the government has or whatever, the bidding rounds are done with. Now the government also has a very strong requirement too. I mean, that's -- capital investment has to come in, that infrastructure has to come in the ground. Only that will grow volumes and reduce our dependence on oil and whatever your climate commitments, and we want to increase the share of gas, et cetera. And CGD is probably the one sector where there is this potential where gas can increase. So that is the other factor at play. So there is a compulsion on the government also that they cannot just abandon the sector. So it aligns with the sector. There are a lot of things which make it align with the current government priorities. Be it climate change, be it your input deduction. Reduction in input dependence or the reduction of oil dependence, even the share of gas to 15% in your primary energy basket. Then grass root level, I mean that -- district level now gas infrastructure is going to reach a lot of people. So there is some mileage in that also, so just giving out licenses and nothing happening on the ground, I don't think is the intent of the government.

The next question is from the line of Kirtan Mehta with BOB Capital.

[Audio Gap] question on the margin to the [Audio Gap] you have mentioned in the norm that you have provided…

Little louder.

Mr. Mehta, may we request you to speak louder, we are not able to hear you clearly.

Yes. [Audio Gap] liability that you have provided for the margin for the OMC. So is it only for the period of this volume for this quarter that you have provided, or are there any prior period liability has also been accounted here?

Could you please repeat the question?

You have mentioned that you have provided for the ability [Audio Gap] corresponding to the charge faced by OMC for the additional margin to the extent you considered appropriate. So you've provided [indiscernible] for which margin has been charged.

No. We haven't provided anything for the prior period in the current quarter. We have been providing as per our internal estimate, and that has been maintained.

Fine. And could you also indicate the CapEx for [Audio Gap]

We are already at around INR 500 crores plus. So by year-end we could be nearly INR 650 crores, INR 700 crores this year.

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

Sir, could you please update us on the run rate of CNG vehicle conversion or addition in all 3 geographical areas? And can you provide us the breakup of the same, how many of them are taxis, auto rickshaws and heavy vehicles?

I think in the quarter we have added about 17,675 CNG vehicles. A large majority of them, about 11,800 were private cars, about 1,600 were 3-wheelers, about 3,500 were small and light commercial vehicles. Remaining was a mix of taxis, heavy commercial vehicles, mini buses, et cetera.

Thank you. Due to time constraints it was the last question. I would now like to hand the conference over to Mr. S. Ramesh for closing comments.

Thank you. Before I start my thanks, I just had a last thought [indiscernible] in terms of your cash flows, you're looking at about INR 700 crores of cash and this year [indiscernible] for CapEx. So looking at your cash flow and the CapEx commitments over the next 2, 3 years, when do you see yourself having surplus cash? And do you have any intention to use that for acquisitions to further your growth prospects?

We will be open to all opportunities available in the sector. And also we will be looking at new businesses which are aligned to our CGT business. So management is open. And if you look at our new initiative, we have started LNG stations also. So that -- there we are targeting some amount of CapEx. But as of now there are no formed up proposals. And we will be open to new proposals.

Okay. Thank you. So with that, ladies and gentlemen, on behalf of Nirmal Bang Institutional Equities, I thank all the participants for taking time off and making this an interactive session. Let me also thank Mr. Sanjib Datta, Mr. Rajesh Patel and Rajesh Wagle and the management of Mahanagar Gas for arranging this call. And thank you, and good evening. Take care and safe day. Thank you very much.

Thank you, Mr. Ramesh. Have a great day.

Thank you.

Thank you. On behalf of Nirmal Bang Institutional Equities Private Limited, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.