Mahanagar Gas Limited (MGL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Mahanagar Gas Limited Q2 FY '23 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Agarwal from PhillipCapital India Private Limited. Thank you. And over to you, sir.

Thank you, Ranjo. Good evening to all the participants. On behalf of PhillipCapital India, it is my pleasure to welcome you all to the Mahanagar Gas Limited's Q2 FY '23 and H1 FY '23 Earnings Conference Call. Today, we have with us the senior management team of MGL, represented by Mr. Sanjay Shende, Deputy Managing Director; Mr. Rajesh Patel, Chief Financial Officer; and Mr. Rajesh Wagle, Senior Vice President, Marketing. They will share the initial remarks on the quarterly performance of the company and that will be followed by the Q&A session. Before that, I would now pass it on to Mr. [ Diwakar Pingle ] for reading out the disclaimer. Over to you, sir. Thank you.

Thank you, Ankur, and welcome to the participants on this call. 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 expectations contained in the statements are reasonable. However, these statements involve a number of risks and uncertainties that may lead to different results. The risks and uncertainties related to these statements included -- include, but are not limited to fluctuations in sales volume, fluctuation in foreign exchange, other costs and 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 interrelated into a full year number. With that said, I'll now hand over the call to the management. Thank you. And over to you, sir.

Good afternoon, and welcome to the earnings call of Mahanagar Gas Limited for the quarter 2 of financial year 2023. I would like to thank all of you for attending our earnings call today. Due to continuing geopolitical situation and supply shortages across the world with respect to natural gas, Q2 of '22-'23 remains challenging for MGL and for the entire CGD industry due to high input gas costs. To meet the growing demand of the sector and to bridge the gap between APM allocation and demand from the priority sector, that is essentially CNG and domestic PNG, Ministry of Petroleum and Natural Gas issued revised guidelines in May 22, and pooled gas was being provided to all CGD entities at uniform base price or UBP for priority sector. Under these guidelines, pooled gas allocation was revised on a quarterly basis by constrained consumption of previous quarter plus [ 2.5% ]. This helps the CGD entities like Mahanagar Gas to grow their demand by using market price gas for the quarter and in subsequent quarter gets pooled gas allocation against such increase in the volume. However, within pooled gas, APM allocation was done based on the availability of the domestically produced gas. During the period, pooled gas mixed with market price gas, which included LNG, was supplied at USD 8.91 per MMBtu for July '22, USD 10.52 per MMBtu for the first fortnight of August 22. And from 16 August, 2022, practice of mixing market price gas, essentially RLNG was discontinued. And since then, CGDs are required to bridge the gap on their own. The present pooled gas allocation, which is essentially nothing but APM and CBG, or some portion of HPHT, that is high-pressure, high-temperature gases is approximately 90% of the CGD requirement for the priority sector. On the demand side, MGL continues to create CGD infrastructure across its business segments in the license area. During the quarter, 62,000 plus domestic households were connected and thus, we have established connectivity for nearly 1.99 million households in our licensed area. We have laid 39 kilometers of steel and PE pipeline, thereby taking the aggregated pipeline lengths to over 6,325 kilometers. We have also added 5 new CNG stations. And with these, we now have 296 CNG stations as on the end of the quarter. We have also added 86 industrial and commercial customers during the quarter. And thus, on the quarter end, we have 4,427 industrial and commercial customers. In respect of our Raigarh GA, we are connected to 60,320 domestic households and 23 CNG stations are currently operational. During the quarter, we have laid approximately 7 kilometers of pipeline in Raigarh GA, thereby taking the total length of pipeline in Raigarh GA to 365 kilometers. This expansion of our pipeline network has created a very good ecosystem for CNG and PNG in the Raigarh area and will definitely enable expeditious unlocking of demand in Raigarh once our city gas station at Savroli is operational. Overall, average gas sales volume for H1 of the current year compared to the H1 of the previous year has increased from -- increased to 3.453 MMSCMD from 2.763 MMSCMD, an increase of over 25%. CNG volume has also increased to 2.540 MMSCMD from 1.894 MMSCMD, which is an increase of 34.51%. Industrial and commercial sales volume has also increased to 0.442 MMSCMD from 0.410 MMSCMD, an increase of 7.8%, and the sales volume for domestic PNG has increased to 0.470 MMSCMD from 0.459 MMSCMD, an increase of 2.4%. Coming to MGL's operation during the quarter. We have achieved an overall average gas sales volume of 3.459, MMSCMD, an increase of 0.3% over the previous quarter volume of 3.448 MMSCMD. Compared to the previous quarter, sales volume in the case of CNG has increased from 2.539 MMSCMD to 2.541 MMSCMD, which is an increase of 0.1% only. In the case of industrial and commercial sales, volume has increased from 0.439 MMSCMD to 0.447 MMSCMD, an increase of 1.8%. Sales for domestic P&G for the quarter has increased to 0.471 MMSCMD as against the previous quarter volume of 0.470 MMSCMD, an increase of 0.3%. The current quarter's EBITDA went to INR 253 crores compared to the previous quarter's EBITDA of INR 286 crores. EBITDA margin is at 16.18% for the quarter as compared to the previous quarter EBITDA margin of 19.60%. Net profit after tax is at INR 164 crores for the quarter as compared to INR 185 crores in the previous quarter. With this, I conclude, and would now like to open the floor for questions. Thanks very much.

[Operator Instructions] The first question comes from the line of S. Ramesh from Nirmal Bang Equities.

Sir, if you can explain to what extent the price increase you have taken in CNG and PNG November is offsetting the increase in gas costs that will help us understand how this will help you maintain or improve margins in this quarter?

I think this is a question pertaining to current quarter, that is Q3.

Yes.

And you know our current price is at 89.50 per kg in case of CNG and INR 54 per SCM in case of domestic.

Yes.

Okay?

So to what extent does it help you offset the increase in the gas cost? Or is there some more price increase required to offset the increase in gas costs? That was the question.

See, if you look at the availability of APM gas, coupled with a requirement of market price gas to be mixed with -- [ just stop ] catering to CNG and domestic, the cost keeps on changing. So we have more or less passed on, maybe some marginal amount might not have been passed on keeping in view the current diesel price and the petrol prices. However, we will always review that and see how do we best maintain our margins.

And what will be the share of spot LNG in your overall gas purchase basket?

So far, on an average, we have been getting 90% of our requirement and it has been going up to -- at times up to 93%, 94% as well.

Okay. There is one last thought. In terms of the CapEx and the incremental upside and your future growth in the CGD volumes, can you give us some sense how much you will spend this year and over the next couple of years? And how would that help you grow your volumes over the next 2 years, 3 years?

So as far as CapEx is concerned, up to September, we have already spent around INR 300 crores, okay, little less than INR 300 crores. And since our actual construction season start post-monsoon, we will be doing CapEx in the range of around INR 650 crores to INR 800 crores. That is our endeavor, but actual CapEx will always depend on the availability of formations and other things. Our budget and our preparedness is there up to INR 800 crores. We should watch and see how much we actually do it.

Sir, can you give some sense in terms of what is the upside in volumes we can expect? Supposing you spend, say, INR 800 crores into INR 3 crores, about INR 2,400 crores of CapEx, how much will it help you in terms of your future volume growth?

We maintain the guidance on growth in the range of around 6% CAGR, 3 to 5 years CAGR. It may be a little more this year because of last year impacted by COVID. So compared to last year's average of 3 MMSCMD, today, we are already touching almost 3.45 MMSCMD to 3.5 MMSCMD. But however, on a 3 to 5 years period, we will maintain the guidance around 6%, with our city gas station getting set up in GA3. And slowly, we will convert some of these stations, which are currently running on daughter booster mode or non-online mode to online, we will see growth coming from GA3 as well as CNG and industry as well in that region. And also, we are adding new customers in GA1 and GA2 and more and more vehicles switching on to CNG will help us the growth in the range of around 6%.

Next question comes from the line of Varatharajan Sivasankaran from Antique Limited.

Sir, what has been the vehicle conversion numbers? And we are still quite surprised by the flat volume growth Q-o-Q. Is there any reason why that is so?

Yes. If you look at vehicle conversion numbers in Q2, they are marginally lower. Overall, around 15,500 vehicles have come on to CNG this quarter as against probably around 19,000 vehicles in the last quarter, which includes more or less similar number on account of commercial vehicles, roughly in the range of around 2,200 plus. There is an addition of even private cars, 11,300. Even taxis have been added, some amount of taxis around 200 and small number of buses around 20. This is the number. So overall around 15,500 is the number added during the quarter.

So in this context, maybe how this kind of a number, though it is down Q-o-Q, but still little bit surprised, the volume numbers were absolutely flat quarter-on-quarter. Any specific reason for it? Or is it only kind of monsoon or [ summer season]?

If you look at the CNG volumes in particular, the price has been steadily increasing from Q1 to Q2. So the cost of CNG, what we hear from reports pinching the auto rickshaw drivers and taxi drivers, et cetera. So our -- I mean guess is that they are driving more conservatively. Previously where they used to run a lot of dead kilometers, looking for passengers to pick up, et cetera, that has gone down. So there is a chance that the per capita consumption might have dropped a little bit. Third thing is if you look at this 15,000 vehicle numbers which are added in the quarter, that is actually a relatively very small number when you compare it to the 8 lakh plus vehicle population, which is on CNG. So this quarter-on-quarter increase flat, decrease, jump, that is very difficult to micromanage or explain. [Technical Difficulty]. However, if you look at it on an annual or CAGR basis, you will see the consistent growth, which is there.

Understood, sir. If I can squeeze in one more question. What is the midterm contract supply? Was there a significant cut? What is the actual volume vis-a-vis the contractor volume?

Generally, it is observed that if there is a term contract, which has some proportion, which is on best endeavor, then during the time when spot prices are comparatively higher, the supply is restricted to supplier pay more or less.

Any numbers that you can share?

It was not supplied over and above the supplier pay level under, at least...

1 or 2 contracts.

1 or 2 contracts.

Understood. But what was the number? Could you give us some indication?

Roughly, we must have got around, all put together in the range of around 0.45 to 0.47.

Next question comes from the line of Aditya Suresh from Macquarie.

Sir, 2 questions. First is in terms of your margins, right, sir, is it fair to say that at the current kind of CNG price of 89.5, all else constant in the current environment, you're going to be able to protect your existing margin even in the next quarter? Or do you see that margins should fall given where we are from a pricing perspective?

Yes. See, it's not appropriate right now to guess or comment on the Q3 margin. However, I can say that compared to Q1, Q2 margin, we have been either able to improve or maintain more or less, okay, as far as CNG and domestic PNG is concerned. Both these margins have been well maintained. In fact, we have realized a little more compared to Q1, okay. And as far as industrial and commercial is concerned, since our pricing is linked to alternate fuels, in view of alternate fuels coming down, on an average, the basket fuels have seen a reduction of almost 20%, 22%, the realization there has gone down compared to Q1, though it still remains good in terms of earlier corresponding previous year same quarter or something. But Q1 of this year was exceptionally good as far as realization was concerned. At the same time, the gas costs, overall index, be it Henry Hub, be it Brent in contract, the gas cost, especially Henry Hub has increased. So overall, gas cost has increased and realization in case of I&C has been under pressure because of the linkage to alternate fuels. In spite of charging premium, we have not made as good realization as it was in Q1.

Correct. I guess if I -- sorry, for the basic question as well. But sir, APM has gone from 6 to 8.6 and our pricing has gone at the CNG retail outlook from 85% towards 90%. I guess in that context, I'm just worried that margins will see more downside compared to where we are today. Is that a fair understanding of the situation? Or if you can just help us with that.

I would certainly say that margins are under pressure because as you are saying, 40% APM price has gone up. We have to now watch and see how much allocation of APM is available and what is the price of market price gas, which comes up in this quarter or the subsequent quarters, that will more or less decide the margins. Our endeavor will be always to maintain the margin. However, we will always look at, we don't cross the limit where we don't put anything on the table for the customer vis-a-vis diesel and petrol, okay. So certainly, margins are going to be under pressure. Also another factor which is contributing to the cost is exchange rate, which as rupee devaluation is also impacting.

Is there a floor margin which you'll think about? We've seen some peers prioritize margin over volume. So if you were to prioritize margin...

We do not practice as a floor margin.

Okay. Okay. I guess the final question, sir, was that -- okay, so at 89.5, it's really palpable that as you were saying as well that the users of CNG have been a bit watchful in terms of demand patterns. But can you speak about the ability to further increase prices given where we are today and given some of the kind of feedback you're getting from your customers?

Currently, we are comfortable with the kind of price we have -- price rise we have taken, but we'll have to wait and watch how spot prices move going forward and we'll take a call accordingly. If you look at it currently, the spot prices have started a little bit tapering, but one can't say with very high confidence, how long that price will remain.

[Operator Instructions] The next question comes from the line of Maulik Patel from Equirus.

Sir, do you have anything about this medium-term contract which you signed last year? Can you just tell us what's the validity of those contracts, for how long those contracts are there?

Out of the term contracts, we have one contract which is medium term and it's roughly ending somewhere in....

7, 8 months.

7, 8 months. Next 7, 8 months.

Okay. So you have, I think, 3 contracts, which I think you mentioned in the last con call.

Yes. Other 2 are for 5 years to 6 years. This one was a shorter tenure, and it is having balanced 7, 8 months from now.

Got it. And sir, any update you have to share on -- related to this Kirit Parikh Committee, which government has set up? And also, with this ministry notification which was there in mid of August that subsequently going forward, the APM gas allocation will be linked to the increase in number of the PNG collection? Anything, sir, to share?

Regarding the Kirit Parikh Committee, we are eagerly awaiting the outcome of the report and subsequent approval of the same by the government. As far as the 10th August circular is concerned, there were 2 circulars on 10th August. The second circular doesn't talk about linking it with PNG. Yes. So PNG connection. So we presume that, that is not on the table as of now.

Got it. So you may continue to get it around 94% of the -- or 90%, 91%, 94% of the -- your requirement as and when the APM gas from the government?

Yes. APM gas and blended with some amount of high-pressure, high-temperature gas as well as CBG. That is compressed bio gas. And the price at which it is being sold today is....

Around $6.26. Yes, up to Q2, I'm saying.

Sorry. Can you just repeat that? Can you just repeat the last line? What is 6.26?

That is uniform base price.

Uniform base price for APM gas, which includes APM, CBG, HPHT.

Okay. Yes. Got it.

And currently, it should be somewhere around -- I think 8.57 is APM. So the blended CBG, HPHT is somewhere around 8.75 or so.

Got it.

But I just declare every month.

Next question comes from the line of Saurabh Handa from Citigroup.

My first question is on the term LNG contracts. Sir, you said you got around 0.45 MMSCMD in Q2. How much is the contracted quantity across these 3 contracts?

Roughly around 0.66.

Okay. And this excludes the kg gas of 0.1, right?

No, including.

Okay. It includes. So the LNG part will be around 0.55?

You are saying overall?

Yes. So this 0.66 includes the kg of 0.1, is that correct? So excluding the kg, it would be 0.55 of term LNG?

Yes. Yes.

Okay. Sir, my second question was on industrial and commercial realizations in the quarter. Could you give us the numbers, how much they were in Q2?

You are saying sales price realization?

Yes, sir, the realization.

Yes. It has a range between, on an average, INR 60 to INR 66 per SCM.

This is across both industrial and commercial?

Average of all, yes, industrial and commercial. Yes.

Okay. Sir, just my last question, if I may. On the committee -- on the Kirit Parekh committee, are there any time lines that you are looking at? That's one. And secondly, are you also hopeful for any sort of relief on the allocation side? Because, obviously, 94% has come down to maybe around 90% now. So I'm guessing the absolute volume number is not changing. And as the volumes grow, the percentage will keep coming down. So one is on time lines. And secondly, anything on the allocation of itself that you are hopeful about?

The time lines are a little uncertain, but we definitely look forward to the outcome of the report, Kirit Parekh report, because it was especially constructed for taking into account the aspirations of the city gas companies in the country. And as far as the present APM allocation and our uniform base price allocation is concerned, couple of months back GAIL had -- we understand that GAIL had added some more quantity by cutting from the priority sector of power, but we are not aware of any further upside to the entity now as of now.

Okay. But so you're hopeful still that maybe there can be developments on this as well on further allocation?

If there is any HPHT gas which comes in the market and GAIL sources it, then yes, that will be added to the kitty going forward.

But not from the power sector?

Really, we are not in a position to comment on this question.

I think you can pose this question to GAIL India limited or the government.

Or the government. Yes.

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

Yes, sir. First question is regarding this GAIL pipeline tariff issue. So you'd be like fighting this out in higher courts, right? So I just wanted to know, I mean, this court appeal would be the last one of it or you can like -- you have room, if by chance if something comes against your favor, then is there any further chance or it is like the final forum?

Certainly, we will be fighting out this case and it can go up to Supreme Court as well.

This will be in the Bombay High Court?

No. This will be initially in Delhi High Court.

Okay. And then if not, then you can....

[Technical Difficulty] right now hearing on this matter.

Okay. And have you got a hearing?

No, no. Not yet. We are yet to file our appeal.

Okay. Okay. Fine. Fair enough. Okay, sir. And secondly, one small bookkeeping question. Industrial PNG volumes for the quarter, not industrial, commercial, just industrial and also CNG sales in kilogram?

PNG sales in kilogram?

Kilogram, yes.

Okay. Just a minute. See, actually, industrial and commercial sales, if you note down the figure together, it will be better because we have been doing some reclassification of the customer categories, okay.

Okay.

So especially this quarter, we will not be able to give separate figure. The industrial and commercial put together is 0.447. Okay?

Okay, sir. Okay.

And CNG, 3.459 MMSCMD, you can convert it by a factor of around 1.4.

It will be 1.4, right? Okay.

Yes, little less than 1.4 or 1.39 also.

1.39. Okay, sir. Fair enough.

Kg should be around 1.8 to 6 kg.

1.8 to 6, right? Okay.

Yes.

Next question comes from the line of Abhilasha Satale from Quantum AMC.

Sir, we are awaiting this Kirit Parikh Committee report. And most probably, I mean, there is a rumor that the APM price -- there will be some downside to the APM prices. So as and when it happens, what will be our strategy? So will we pass on the benefit to improve discount to the alternative fuels and improve the conversion rate? Or we are in a position to retain large part of the benefit, which will come through us from the cost side.

Certainly, if the price comes down, we would like to pass on. How much pass-throughs? That I think we'll have to wait and watch.

Wait for the exact number.

Wait for the exact number to decide that. But we will have to balance out between value proposition for the customer to come on to CNG and then take an overall decision. There will be pass-on to some extent. And there we'll have to decide based on the number which comes out. As of now, I think commenting on this is very, very difficult.

Okay. Okay. But in case, sir, if we pass it on, then would we see incremental converging? I mean, as such like even at this rate, we are not seeing that substantial convergence have gone down or like that proportion -- that scenario is not there. So if we pass on some of the benefits then, is there a possibility that we will see increase in conversion rates?

I think a period of quarter or 2 quarters to comment on whether the momentum has impacted due to price or not is very, very difficult because a lot of vehicle bookings might have been done earlier. So one has to see over a little longer period of time. Certainly, the gap between diesel and petrol is reduced -- if reduces, then it will impact. Some amount of impact will be there in case of commercial category. Okay. However, right now, we are not seeing that kind of impact maybe because it will have impact with the leg. So looking at only 1 or 2 quarters number, it's not right to judge, okay.

Next question comes from the line of Yogesh Patil from Centrum Broking.

I have a couple of questions. First of all, could you please share the breakup of input gas volume in terms of gas pooled, contracted LNG and spot LNG? If you could provide it in terms of percentage terms, that would be really helpful.

Could you repeat your question? Total gas?

Yes. Could you please share the breakup of input gas volume in terms of, first, gas pool; second, contracted LNG and third, spot LNG?

See, as far as requirement for priority is concerned, domestic and CNG -- domestic PNG and CNG, we are roughly blending 10% of spot, okay. And as far as industrial and commercial volume is concerned, we are able to cater through a term contract fully.

Okay. And sir, just how was the -- how it has changed compared to the first quarter FY '23?

First quarter, actually, very difficult to say because in the first quarter, there was a pooled gas supply. In fact, in this quarter also, it is slightly difficult to say because up to 15th of August, the blending was done by GAIL and we were supplied at one price, okay. So our requirement from 16th of May till August was less as far as spot gas is concerned because APM plus blended RLNG was coming through GAIL, okay. However, there are operational constraints, which have remained in Q1 as well as some parts in Q2 as well. So if you might have contracted something and you do some adjustment of those, then you may see a little bit difference between the actual quantity available and actual quantity utilized through the pooled mechanism. In fact, both these quarters have a mix of pure RLNG [ put-in bias ] and some part which is given by GAIL in the pooled mechanism.

So is it a fair point?

I'm saying 10% was the requirement, or 90% of APM gas or APM plus CBG and HPHT was available. Rest was through spot.

Okay. Fair enough. Second one regarding -- looking into your historical EBITDA per unit, it was mostly into the double digit, which was close to INR 10 per SCM. So in this volatile input gas cost environment, what one could assume for the second half of FY '23 and the upcoming period FY '24? Could you please guide us on the EBITDA per SCM side?

Our endeavor will be always to maintain. However, it is difficult to comment on futuristic numbers. It will all depend on how much APM quantity is available, what is the price of spot RLNG, how the price of diesel and petrol fares during this period. So all these factors put together, we will be able to maintain a reasonable good margin, okay. But crystallizing or pinpointing on numbers will be very, very tough task for anybody.

Next question comes from the line of Somaiah V from Spark Capital.

Sir, first question is from the spot....

Say a little louder.

Yes. First question is on the spot quantity being bought last quarter. On the industrial and CNG front, industrial, by and large, you would have got catered by the medium-term contracts. Is that the right understanding? And on CNG, probably for the second half of the quarter, the 4%, 5% shortfall is something that you would have resorted to [ on-spot pricing ]? Is that the right understanding?

I could not hear your last sentence. You need to little be, I think, near the mic or louder.

Yes. The question pertains to spot LNG buying in the previous quarter, Q2. So industrial, more or less, we would have been sufficient with the mid-term contracts that we have. Just wondering if that's the right understanding. And second, in terms of the priority sector for us, the CNG part, the shortfall would have been to the extent of, say, 4%, 5% and that to from, say, mid of August. Is that the right understanding?

Yes. You're right, because up to mid of August, the blended gas was supplied by GAIL and the quantity increased after August.

Right. Second question. The medium-term contracts that you are referring to the 0.66 MMSCMD that we have, so the balance term for all these 3 contracts is 7 months to 8 months, is that right, I mean -- though the contract period is different? One is 1 year. The other 2 are 5 years. But the balance remaining period is only 7 months to 8 months.

Correct. Up to around, I think, 'June 23.

So all 3 contracts will get over by June '23?

No, no, no. No. Other 2 contracts still have a good time. I do not remember the dates. Only the one contract which was midterm is getting over around June 2023.

And what would be the volume of this contract that is getting over in June '23?

Contracted quantity should be around 1.5 lakh.

0.15?

Yes.

0.15 out of the 0.66.

Yes.

Got it, sir. Sir, the third thing, I mean, we have seen, in terms of gas cost increase, be it on APM front or the lower allocation or FX, this has happened between, say, September into October. So we have increased close to INR 9, INR 9.5 so far. I mean when we increased these prices, is there anything that we keep thinking in terms of the petrol spread versus CNG? And is there a point -- is it slightly after which we feel, okay, probably here the spread is too narrow and it can have a rub-off effect on the volume? Is this something that we think and what the number would be?

There is no such hard number. What we have observed is relatively high price increases, which we have taken recently is that the new vehicle addition has slightly tapered off compared to, let's say, Q1. So definitely, there is a thought in the mind of the consumer that should we wait for some more time before buying a CNG vehicle or what. So the vehicle addition has not stopped. But from about 19,000, I think Mr. Patel had said, 19,000 vehicles, which came on in Q1. Q2, it was only about 15,000 vehicles. Now that is a trend which, ideally, we don't like to see because we are chasing volume growth here. So we are hopeful that going forward with gas prices hopefully softening a bit, again, the momentum on CNG volume addition will again pick up pace. Growth is still there, maybe not at the previous quarter or previous half year rate. That is why we -- in our guidance, say, we talk of a 5-year kind of a CAGR at quarter-to-quarter or short-term variations. We don't give too much material significance.

Got it, sir. One last question on the industrial and commercial prices. I mean, you did mention that INR 60 to INR 66 around that rate. I mean...

Could you be a little louder, please?

On the industrial and commercial prices, you did mention that INR 60 to INR 66 is the pricing currently, I mean for Q2. How has it been trending?

In Q2, not currently. I said in Q2.

Yes. How has it been trending in the last few quarters? I mean compared to the alternate fuels, if you could just give some color on that.

Yes. As I said earlier, our pricing is linked to alternate fuels. Q1 was very good comparatively compared to Q2, okay. Let us see how these alternate fuels move going forward. And based on that, there will be realization, though we do charge premium over the alternate fuels to maintain our margins to some extent.

So what would be the industrial and commercial prices currently, if you can help us?

Currently, I think basic price should be in the range of INR 60 to INR 65.

So largely flat versus Q2.

But it keeps on changing month-on-month.

There are quite a few segments within the industrial and commercial bucket also where typically the price for the customer is linked to the -- predominantly used alternate fuel by that category of customer. So we have customers who are indexed to LPG also. We have customers who are linked to large bulk industrial fuel also. So it is a mix. When you say industrial or commercial, it is not just one category. There are subcategories in that. And there is a variation in price depending on how the alternate fuel for that category moves.

The number I gave is average across all the categories.

Understood, sir. Understood.

Next question comes from the line of S. Ramesh from Nirmal Bang Equities.

Yes. Sir, if you're looking at the sensitivity of the CV segment, what is the percentage discount of CNG compared to diesel below, which your conversion of CVs will possibly not be as visible? Is there a number you can share with us because that's possibly one segment which is growing? Especially because if you're seeing the potential for a correction in diesel spreads and international prices, how would you see that play out, say, in the next 1 to 2 years based on your understanding on the ground?

As regards commercial vehicles, there is no one number. We can't say if there is a 10% discount to diesel we'll keep selling, because we need to understand that the vehicle categories are also quite diverse, ranging from a small commercial vehicle to now even heavy commercial vehicles are coming OE-fitted with gas engines. And the payback period differs for different class of customers, depending on not only the spread between CNG and diesel selling prices, but also the spread between the initial on-road cost of the vehicle and most importantly how many kilometers that vehicle runs on an average in a day or a month. So the number is -- it varies for different classes of customers. For a large transporter who runs a few 100 kilometers per day, maybe -- he may be able to work with a 10% kind of a discount to diesel. But for a, let's say, a small commercial vehicle, where the on-road cost difference is not much but, however, the running per kg also may not be that much, so the number could be slightly lower. So there is no one number for the whole commercial vehicle category as such. It is more of a range. And we are conscious of this fact that we need to keep that customer sentiment towards CNG continuing because the other good thing is now a lot of commercial vehicle OEs are coming with factory-fitted CNG. They have already come in with the models, which is actually a large need, which was there in the market. Because before that, the transporter had to rely on retrofitting, which was not always reliable in terms of quality and cost. So on an overall basis, if you see, the trend is positive for CNG at the expense of diesel.

Sir, on a similar line of thought in terms of the competitiveness of CNG versus petrol and diesel, you'll realize that it's come down. So is there a threshold below which you'll have to cut prices and take some sacrifice on margins, say, in the next, say, 6 months to 12 months and then eventually, over a period of time, try to make up? What is the thought on that?

Well, the overriding priority remains to steadily aggregate volumes in the long term. Now we -- as far as petrol goes currently also, there is -- we don't foresee any material challenge on the customer value proposition front because even at today's prices, CNG is turning out to be more than 40-plus percent economical compared to petrol, which is a huge incentive. Of course, private car owners do not tend to log in hundreds of kilometers per day, which impacts the payback, but then 40-plus percent discount is a good payback for anybody who runs even 60, 70 kilometers a day. And again, as I said before, with factory-fitted CNG variants now coming out, more and more customers are preferring to take CNG. Other thing encouraging customers is CNG now is almost a pan-India phenomenon. Previously, let's say, 3 years, 5 years back, CNG used to be considered by many customers and OEs also as a Maharashtra, Gujarat or Delhi centered phenomenon. But now with the number of GAs licensed out and new and new entities opening up CNG stations all over the country, that there is this momentum towards CNG. And long term, we see a lot of growth and value proposition there.

[Operator Instructions] The next question comes from the line of Varatharajan Sivasankaran from Antique Limited.

All right. Looking at acquiring domestic guys now that RIL as well as ONGC are planning to increase production and there will be auctions from both parties, so would you be looking to bid? And if at all you are going to bid, I was just trying to understand, since your volumes grew on a continuous basis, what would be the volume you'd effectively bid over? Would it cover 1 quarter, 1 year or 2 years? And how do you manage this entire volume at which you want to bid under the term of the contract?

ONGC volume. You are talking about ONGC new volumes?

Yes. ONGC as well as RIL, and the new volumes come, if you were to bid, what would be -- how will you bid in terms of the volumes? Would you bid for a 1-year coverage or 2-year coverage? And what will you do in the interim? Since the volume will be too high for you, will you be allowed to trade it out for the time being? How do you work that out?

For large extent, the term of the contract is determined by the seller.

Right. So then how do you match your volume in terms of how it grows and....

Reliance had made the term also on bid parameter [indiscernible]. We were not seeing that. And we will take a call on what we think is our volume requirement estimate and accordingly as our volumes keep growing incrementally. In case domestically produced gas does not match up with that volume ramp-up, we'll keep buying tranches of medium-term gas or something like that as long as we have a certainty of volume uptake. And the last bit balancing, we'll tend to do on a reasonable and basis on spot gas [indiscernible].

Next question comes from the line of Ankur Agarwal.

I just wanted to check regarding the margins for the commercial and industrial segment. I mean, we understand that pricing is under -- pricing has come off from the first quarter currently. But Brent prices have also come off during that time. So are you seeing some ease in the input gas cost as well? And how are the margins behaving on the C&I side, if you could just help us understand that?

Compared to Q1, the margins are under pressure as far as commercial and industrial is concerned because of the realization mainly and gas costs, as well as exchange rate increased during this quarter. Even going forward, exchange rates may put pressure and we'll do watch out for gas costs, how indexes remain and how spot prices remain going forward?

And sir, compared to second quarter, I mean, if we are to talk about currency, how are you managing?

Current quarter, I think, let us wait for some time. Maybe it is more or less same as of now compared to Q2. But we'll have to watch out for exchange rate, as well as the indexes to which gas cost is linked and also spot price.

Okay. Sir, just one clarification. You mentioned that the -- currently, you're getting blended gas at $8.75 per MMBtu. Is that correct?

When I said blended, it is APM plus CBG and HPHT. No spot RLNG or market price gas in that.

Okay. On top of that, you have to -- for the priority segment, you have to add around 5%, 6% to 10% of spot LNG as well, right?

In the range of 7% to 10%, yes.

7% to 10%. Right. Right. Okay. I think that's helpful sir.

Thank you. Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Ankur Agarwal for closing comments.

Thank you to the participants. I would like to thank the management of Mahanagar Gas Limited for taking out the time for this interactive session. And I would also like to thank all the participants who joined on the call today. Thank you all. Over to you, Ranjo.

Thank you very much.

Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.