Mahanagar Gas Limited (MGL) Earnings Call Transcript & Summary

Cool. Sir, as far as the delta in the CV sales is concerned, was it to our satisfaction because what I was wondering was that this is a very, very attractive scheme. But somehow like 10%, 15% kind of an increase in sales doesn't really seem to be a big impact. So am I right in judging that? Or do you think like it is broadly along expected lines?

The commercial vehicle segment, the scheme did increase the number of vehicle sales, but the base number itself was so small that it didn't move the needle when you look at the overall CNG sales. And one primary issue which we are trying to deal with in the market and along with the OEs and MGL together is many of the transporters, they have that worry in the back of their mind the CNG prices, say, a year or 2 back had crossed INR 89 in MGL's case. In some GAs, it had touched diesel price, et cetera. So that we are working hard to dispel those kind of issues. And telling them that now with the government changing its policies and ensuring availability of domestically produced gas, we are seeing clear pricing stability at least for a few years going ahead. And of course, the -- at current price levels, the proposition is quite attractive for them. So some of them are opting for it. The only thing additional which needs to be done is to convince them that this -- they will have this advantage for a few years. And when you look at the total cost of ownership, it will be beneficial for them.

Fair enough, sir. Secondly, on the new acquired GA, have you drawn out any plan in terms of investment? Sir, should we look at some outflow in terms of investment next year and the following year?

Around INR 100 crores to INR 150 crores is expected to be invested in the Unison this year, '24-'25.

Sure. And the similar kind of a run rate should we expect for subsequent years as well?

Actually, it depends, but once we take over the acquisition in our hands, we will thoroughly review about the minimum work program. But we are going to be aggressive in terms of CapEx because we will like to have the basic infrastructure in place to take the leverage in coming few years. So yes, the investment after our thorough review of the company and the availability, the financial strength and the expected growth, we will take a call on it. But yes, INR 100 crores to INR 150 crores is the numbers we expect year-on-year.

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

So if you're looking at the Unison Enviro GA development, so when do you expect to complete the payment for the acquisition cost? And what is the current reading of the gas connectivity for the supply of gas to those networks? Are you going to use virtual network? Or is there pipeline connectivity for sourcing the gas?

Payment, we are expected to be completed in 2, 3 weeks' time. We are in the process of finalizing the documents. And this quarter, definitely, it is going to be completed. Related to the gas availability and connectivity, all the 3 geographical areas which the Unison has is already connected to the main grid pipeline of GAIL. So the gas availability in the main hub is available. The other transportation depends on the type of terrain which 3 GAs have, like in Ratnagiri, most simply, it is connected through daughter booster station and other 2 GAs are connected through pipe grid also. So all of these combinations, which are typically available in a CGD company is being utilized. And also it depends on number of customers, industrial or commercial on the CNG trucks and PNG. We decide the mode that what is the most economical way of operating the GA. Apart from this -- just to add, apart from 3 CGS, for receiving gas, they also have LNG facility in Ratnagiri, which enables them to take LNG at any point of time and cater to industrial customers as well. They have 4 points where they can receive gas.

Also the fact that the LNG loading capacity -- loading facility at Dabhol is already commissioned or is about to be commissioned. So it will be advantageous for the Ratnagiri due to source energy of LNG also from the Dabhol.

That is very near to their LNG station, maybe less than 50 kilometers from Dabhol.

In case of LNG transportation costs from the LNG receiving -- LNG facility to your location is a bigger cost. So this will help reduction in cost. Currently, they may be getting from...

We will relook at the procurement contracts and try to optimize on the transportation cost.

Okay. So in terms of the long-term potential, what is the reading in terms of the split between CNG and PNG in the 3 new GAs under Unison?

Almost 80% CNG, 80% to 90%.

80%, 90% CNG.

Mostly it is CNG and PNG is being developed, but not that much. Industry is also...

PNG and commercial will be very, very low.

Industrial will be around 7%, 8%.

So for the CNG consumption, is there any number you can share in terms of the number of vehicles there are on the ground right now, including the floating vehicles that you discussed at the time of the acquisition. And secondly, the growth you're seeing in terms of CNG utilization, any words or numbers you can share on this, please?

I think I will come back offline on this because we don't have any number right now in that area. But just to give you maybe, we have 53 stations and around 26,000, 27,000 vehicles in all the areas put together. At the time of acquisition, I do not have the data.

Okay. Got it. Just one last one. In terms of your HPHT gas, this is tied up, right now it's about 17% of your overall priority sector volume, which you're reported in the third quarter. So there's a 10% growth that implies requirement of another 0.3 mmscmd. So assuming that APM gas allocation doesn't go up, how will you source the incremental requirement of gas for the growth in CNG and domestic PNG? Will you expect to tie it up from Reliance and then eventually ONGC or will you have to buy LNG? Or how do you see that sourcing strategy for the priority segment?

I think there will be some HPHT available in the next year or so because there are some contracts which will be expiring and some HPHT fresh bidding also can come. Apart from that, we are even signed up other term contracts, which we can always use here, depending on how the Henry Hub index and Brent index is okay. So I think all options are available.

Just to add to that, I mean, if spot prices continue their downward creep for very short-term requirements, we can take spot also and ramp back a bit on our other contracts.

Term contracts, yes, because most of them have 80% or some of them have 60% kind of a minimum guaranteed uptake. So 40% can be done away and swipe the spot if required. And in some of the contracts, maybe 10% or 20%...

But HPHT gas is expected to be put on sale for this year -- this financial year and the next financial year also because some of the contracts of older allocation or whatever contracts have been signed by Reliance and ONGC are expiring in this next financial year also. So that will also come for sale on the -- through the bidding mechanism.

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

Just following up on one of the earlier participant's question, if the fuel -- petrol price cut happens, you mentioned that at some point, we'll have a look at volume growth and decide. So in your -- I mean, what we see currently is there is a INR 30 price gap between petrol and CNG. What level of price difference do you think can have an impact on our volumes? And the second question would be the medium or longer term at what level of per unit EBITDA where we would be comfortable rather to take a price cut? And how much would probably we'd be thinking as a medium-term target?

Look, as regards CNG versus petrol, the fuel cost in CNG is roughly half of that of petrol, the INR 30, I mean, as the rupees per kg and rupees per liter difference, but you get a 15%, 20% uptick in the mileage also. So in the running rupees per kilometer, CNG is almost -- it's 50% cheaper than petrol. So even if petrol goes down by INR 5, INR 10, we will not be seeing too much impact. But on diesel, we are currently at about 18%, 19% discount. There, if diesel prices go up, then potentially -- I mean, that market -- that volume growth could go down. But again the share of the commercial goods vehicle segment and the overall volume contribution that is relatively little. Out of the 22,000 vehicles which came on in the quarter, only about 1,500-odd were commercial goods vehicles. So private car segment, the other 3-wheelers, the aggregators, et cetera, they will -- we don't expect any impact on those volumes. And overall there on CNG anyway, he will enjoy, he will use CNG. So we will basically be tracking the incremental vehicle additions very carefully.

Okay. And to put it differently, sir, at what level of additions, let's say, if it comes below a certain number, will we go for additional price cut or rather at what growth -- let's say, it's 2% growth only on CNG, then we'll take for an additional cut or -- I mean, any markers that we have to track so that we get some sense that, okay, this is a point where you will probably take us the additional cut. That is what we are trying.

That is a strategic call. So there's no point speculating on that because as explained, it is -- depends on many factors, including the margins, the cost of alternate fuel, the cost of procurement, our growth, the number of vehicles, which we expect and the balance between all these parameters. So it is not good to -- not a good idea to speculate on that.

Understood, sir. And what would be the -- so the second question, what would be a medium-term EBITDA per SCM that we will continue to operate with? I mean whatever history we've seen that INR 14 -- INR 13, INR 14, this is the highest ever we have done. What would be a normative run rate that we'll work with?

See, I think you can't decide a run rate and decide that this is the EBITDA I want to earn. What probably any business should look at is how do you grow the absolute profit also year-on-year, along with how do you earn your reasonable margin on per unit basis. So one has to keep on doing trade-off between various factors and decide how they want to grow. So one of the factors will be a resultant factor, which is EBITDA. So if you note last year, my average EBITDA was 9.5. Today, I'm having better EBITDA, but tomorrow, see whether my absolute profitability turnover, et cetera, grows. I may take a cut on EBITDA and still work on a scenario or a combination, which gives me good returns on my investment. So it's very, very subjective question. And it has to be dealt at a point of time in a different manner depending on host of factors which actually culminates into EBITDA per SCM, right?

But just to give you more comfort on that is that our CNG prices are one of the lowest in the country, even the PNG prices are one of the lowest in the country. Cost of procurement has been optimized. Cost of operations is also being -- I mean some -- obviously, some older assets are being replaced. We are running some schemes also. So as of now, 9 months, we are having an EBITDA of 14.83 against 8.4, which was there for the previous 9 months of the last financial year. So we have sufficient leg room available with us. With the schemes coming on place, we expect to get some growth also. And with the prices already being on a lower side, we expect that the EBITDA will be in safe range, around 10 to 12 is very safe to assume in the next year or so.

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

Congratulations on good set of numbers. So I have 2 sets of questions. The first one is relating to UEPL. Unison -- so you mentioned that currently, the volumes are around 0.13 mmscmd. So what has been the growth like in the last 1 year for UEPL?

Maybe around -- they have grown from 1.1 to 1.33 or something. So it's roughly 18% to 20% growth is there.

Okay. So 20% sort of growth is the current recurring growth, which is happening for this company, right? Okay. Secondly, any profitability numbers, et cetera, can you share? I don't know whether you would be able to, but is it possible to give 9 months PAT or EBITDA or something of that sort for UEPL?

They are EBITDA positive, okay? And I think once you get UEPL results in public domain, you may be able to see that.

And next quarter onwards, we'll be doing the consolidation reporting, so in that the results of UEPL will also be declared along with MGL results. So just wait for the next quarter in the end of April or some time that we will be declaring a consol...

Stand-alone and consolidated will be available. So you'll be able to make out what are the...

Right. And a few bookkeeping questions. First is, what were the industrial volumes for the quarter?

Industrial volumes for the quarter, 0.378, 0.38 mmscmd.

mmscmd? And what is the CNG volumes in KGs?

CNG volume in KGs is 1.937.

1.937 million KGs, right? Okay. Excuse me?

Yes.

Okay. And sir, and what was the 9 months CapEx and full year guidance?

Nine months CapEx was around INR 500 crores odd and maybe INR 750 crores, INR 800 crores by this year-end.

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

I'd like to take this opportunity to understand some of the volume growth drivers for the next year. So from -- we have signed 0.15 mmscmd of the industrial contracts. Would you be able to bifurcate that between Ratnagiri and the other GAs? And going into FY '25, what kind of potential that we can target in -- sorry, in the GA-3 as well as sort of the other industrial customers left out in GA-1 and GA-2?

If you're talking of industrial customers, we're currently only talking of MGL. We are not talking of UEPL or Ratnagiri.

And you mean Raigad?

Yes. I mean Raigad, GA-3, correct.

Okay. So volume will be roughly -- I mean, maybe 60% GA-2, 40% GA-3. GA-1 is actually industrial volume, there is degrowth because industries, whatever few are left, they are shifting out. But sometimes some of them shift to GA-2, GA-3. So we get the customers. For example, Godrej has closed down from Vikhroli, but they moved to Ambernath and some of it is moving to Khalapur, et cetera. So we get the same volume elsewhere. Industrial volumes and the other, next year, what the volume drivers or something you're asking for, again, a lot hinges on CNG, which is 3/4 of our sales volume. So for us to grow at 6%, 7%, 8%, whatever, CNG will have to grow at that rate. Industry, we are hoping, will be a bit more. Industry, we'll expect double-digit volumes increase. Commercial is business as usual, I mean, kind of whatever 4%, 5% volume increase happens.

Just a follow-up on the CNG itself. So we have launched the incentive schemes this year and this has probably added some of the volumes. So do you think that if we continue this into -- or we'll give some sort of other incentives, would you be able to sort of grow above your historical growth rate by offering higher incentives? Does that -- would that help to grow into 6%, 7%, 8% range?

Yes. If we start getting traction on the commercial goods vehicle segment, that definitely will happen. And we are putting in all efforts along with partnering with the OEs, who are having factory-fitted good vehicles. So we are partnering with them to give incentives and convince transporters to move away from diesel into CNG. The good thing is now there are more than 30 CNG factory-fitted commercial good vehicles variants available right up to 18, 20 tonne gross vehicle weight range, which was previously not there. So the issue of vehicle performance of a retrofit that we have managed to dispel from the minds of transporters. So they don't have that much of an issue on vehicle performance now because factory-fitted goods vehicles are available. But we still continue to work on the perceptions they have on the pricing. Hopefully, over time, we should get them over that barrier too and the sales volume increase will happen because that is an underpenetrated market for us, the commercial goods vehicles segment. And those vehicles per capita is -- sale of CNG -- conversion of CNG is much, much higher. I mean if you get 1 truck, it's equivalent to about 20 passenger cars so...

Understood, sir. And in terms of the CNG station footprint, how many we have added in the 9 months and what could be complete this year and what will be our target for the next year?

This year, we have completed around 10 in the 9 months period, and we expect around 45 stations to be added this financial year, and similar numbers are expected in the next financial year. The progress of CNG stations typically happen in the last quarter because construction time is there, land is there, permissions are there and so many other formalities required. So bulk of the CNG stations are commissioned in the last quarter of the financial year.

In terms of the addition of the new station is only part of the growth. Other growth will come from the sort of addition of the additional dispensers or sort of converting them to online. So in terms of the compression capacity wise, what sort of the growth will achieve this year? And what could be the target for the next?

Compression capacity wise, we are at a pretty comfortable level because our station utilization or capacity utilization is only about 40% or so. So we are not expecting any challenge on that front. It is maybe for a couple of hours during the day, 50,000 or 100,000 auto rickshaws decide to fill because the shift is changing. There will be some peaking. But we have put in a lot of initiatives to increase customer awareness that there are many hours during the day in which they can comfortably come to the CNG stations, fill CNG and go without waiting. But we are also tied up -- we have an agreement with BEST, which allows us to send vehicles into their depots with the prior app-based slot booking where they can fill without waiting. The BEST bus depots have got infrastructure because we filled our buses during the night and in the daytime, the depots are empty and the infrastructure is idle so it's a win-win for everyone.

And also just add to what Rajesh has mentioned is that 45 new stations are being added and almost similar numbers are being upgraded in terms of converting DBA station to online or adding dispensers or compressors. So in the existing compressor CNG stations also, we are upgrading the capacity depending on the requirement and the load on the CNG station.

So your compression capacity probably is increasing at more than 10%, where the sales volumes are going at 6%, 7%. But then we intend to pursue that because we believe that once you create the capacity, the demand will pick up. And more and more people get incentivized to switch to CNG because they will see it's readily available and convenient.

Right, sir. Understood. Just one last question on the CapEx front. So for FY '25, would we be looking at target of somewhere in the range of INR 900 crores to INR 1,000 crores of CapEx, considering INR 700 crores to INR 800 crores run rate on the existing GAs an additional INR 100 crores to INR 150 crores on the Ratnagiri GA?

Yes, yes. I mean, INR 800-odd crores in the Mahanagar Gas and around INR 100 crores in the -- UEPL INR 100 crores to INR 150 crores. So putting together, it will be more than INR 900 crores -- expect it to be more than INR 900 crores.

The next question is from the line of Somaiah from Avendus Spark.

So first question is on the HPHT gas. So the HPHT gas that we procured we'll be getting at a price closer to the ceiling of $10 for MMBtu, that would be right...

So it is around $9.96 MMBtu from October this year. Earlier, it was $12.12 prior to this.

Correct. Correct, sir. I was asking more from -- I think we required -- probably last quarter, we required around 0.6, of which 0.5, I think, you mentioned as long term. This long term, what would be the linkage and the linkage price leads to above ceilings so we have been getting at a ceiling price. Is that right understanding?

Yes, we have been getting at ceiling price all this time, yes.

So the long-term contract that we have on 0.5 of HPHT, what -- I mean, what would be the linkage, sir, that would be linked to...

That's a ceiling HPHT prices with a formula, which is -- have a ceiling of 3 different fuels. And the lower of the 3 is considered. So it is around $10 per MMBtu as of now. So whatever transactions we are getting till 31st March will be around $10 per MMBtu. And next year, it is expected that it will be in the similar range or maybe slightly lower than that.

Okay. Got it, sir. Sir, also those conversions that we have been seeing increased from, say, as you said, 15,000 to 22,000, so when we are thinking about a mid-single-digit growth in our existing GAs, so what -- I mean what would be conversion number that we'll be thinking it as a good number in this context of 15,000 to 22,000 range.

The numbers we have been traditionally getting was 80,000 also in some of the previous year. Last year, it was 65,000. This year, in 3 quarters, we obtained almost 60,000. So we expect another 20,000. So around 80,000, we will be touching this financial year. Next financial year, the impact of the schemes, which we have launched, and we will have a reassessment after the end of the financial year, and we expect maybe around 80,000 to 100,000 vehicle should be added in the next financial year also.

Okay. Got it. Sir, one last question from my side. So on the -- earlier you used to give on the industrial and commercial segment, the alternate fuel prices. So if you could just help us with the Q3 and Q2, the alternate fuel prices.

As far as, LDO and FO is concerned, compared to last quarter, this quarter, there was a better realization. LDO was 61,350-odd per KL, which had -- which has gone up to 72,000. And FO was 47,500-odd, which went to almost 52,800, whereas in case of 19 kg LPG, it reduced from 1,700 to 1,641 this quarter.

The next question is from the line of [ Ronak from RoboCapital ].

Most of the questions are cleared. Just want to understand like the natural gas prices are currently lower -- like currently 22%, 25%. So how do we see the impact of it on our business? Does it increase the volume of our business or what about it?

I think you -- 22% is what, we could not properly get the question.

I was asking like natural gas prices have come down by 15% to 20%. So how do we see its impact in the volume of our business?

It has improved the margin to some extent. The connected customers continue to take how much our gas they need. And to some extent, your volume increase is also a function of how much infrastructure you can roll out and how many more PNG customers you can connect and how many more CNG stations you can open up.

See, another way you look at your question is that the LNG prices are linked to our industrial and commercial segment because our CNG and PNG segment is catered through APM gas and HPHT, which is not directly linked to the LNG prices. So coming to industrial and commercial, again, it is a variety of factors like what is alternate fuel. So we have different segmentation of pricing in different segments. And therefore, yes, it makes an impact on our pricing methodology and the profitability. However, our dependence on the spot has come down substantially, which was a major indicator in last financial year, wherein we were purchasing a lot of spot, and that used to give a lot of volatility in our profits, which is now much more stable.

And of course, the government's policy, which came in February last year also helped where they started giving HPHT on priority to CGD.

And the term volumes are mostly linked with Henry Hub, which is a very stable index and not much of variability happens in the Henry Hub index.

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

Just on the LNG station additions, what is the kind of cost you are likely to incur in the second half of this year? And how do you plan your CapEx? And what is the kind of visibility on volumes and the top line we can expect from the LNG sales, say, over the next 1, 2 years?

It's a very small miniscule number because only 1 LNG station is working in Savroli. So the contracts have already been signed up with the suppliers in terms of procuring LNG. So we have signed contracts for selling LNG on B2B segment as of now. And the volumes are low and the impact on the total financials of the company will be miniscule.

Okay. And then what is the information you can share on the margins on the industrial and commercial segment or the selling price to get a sense in terms of how it impacts your overall EBITDA per SCM? Would it be close to your blended EBITDA per SCM or slightly higher given the fact that your alternate prices have gone up?

If you look at -- just now sometime back, I said how LDO and FO prices have moved. So this quarter, the margins were good, okay. Had this improvement not happened, maybe the INR 3 reduction in CNG would have brought a little bit my sales realization. But industrial has helped in this quarter. So we can talk about whether we sell at parity or how much discount to these alternate fuels. But to give a number slightly -- but this quarter, more or less realization is slightly more compared to maybe domestic and CNG prices in case of commercial A and commercial B. Industry is more or less in line with average sales regime of priority sector.

That was the last question. I would now like to hand the conference over to Mr. Yogesh Patil from Dolat Capital for closing comments. Please go ahead.

Thanks a lot to Mahanagar Gas management for such detailed answers to each questions. Thanks a lot for your time, sir. Now we will conclude the call.

Thank you, everybody, for joining me. Thanks.

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