MGL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

SANJIB · DATTA

DATTA –

MANAGING · DIRECTOR

DIRECTOR –

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

MR. SUNIL RANADE – CHIEF FINANCIAL OFFICER -

MR. RAJESH WAGLE – SENIOR

VICE PRESIDENT · (MARKETING AND PROJECTS) – MAHANAGAR GAS LIMITED

(MARKETING AND PROJECTS) – MAHANAGAR GAS LIMITED

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Moderator · Conference Operator

Ladies and gentlemen good day and welcome to Mahanagar Gas Q4 FY2019 Earnings Conference Call, hosted by ICICI Securities.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

Should you need assistance during the conference call, please signal an operator by pressing “*”then “0” on your touchtone phone.

Please note that this conference is being recorded.

I now hand the conference over to Mr. Vidyadhar Ginde from ICICI Securities.

Thank you and over to you Sir!

Vidyadhar Ginde

Thank you Stanford.

Good afternoon to everyone and welcome to the fourth quarter earnings call of Mahanagar Gas.

We have the management of Mahanagar Gas Mr. Sanjib Datta, the Managing Director, Mr. S.M.

Ranade, the Chief Financial Officer, and Mr. Rajesh Wagle, the Senior Vice President (Marketing and Projects).

I now hand over to the management for their initial comments.

Over to you Sir!

IR REPRESENTATIVE · Management

Before we begin, I would like to mention that some of the statements made in today’s discussion may be forward-looking in nature and we believe that expectations contained in the statement are reasonable.

However, the nature involves a number of risks and uncertainties that may lead to different results.

The risks and uncertainties relating to these statements include but are not limited to risks and uncertainties regarding fluctuations in sales volumes, 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 trend or an indication of full year results, they should not be attempted to be extrapolated or interpolated into full year numbers.

Over to you Sir!

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 sector, CNG contributes to nearly 50%.

CNG presently constitutes 4% of total gas consumed this will grow progressively to around 8% in years to come.

With the completion of 10th CGD bidding round, CGD would be available in 228 GA’s comprising of 402 districts spread over 27 states and union territories covering approximately 70% of India’s population and 53% of its Geographical Area.

MGL had applied for two GA’s namely a) Mysuru Mandya and Chamarajanagar districts and b) Allapuza, Kollam and Thiruvananthapuram districts under 10th CGD bidding round.

However, we did not succeed in securing any of these GA’s.

Now coming to MGL’s operations, we are rapidly expanding our CGD network in the existing areas of our operations.

During the quarter 38,866 domestic households were added, today we have more than 1.14 million household customers supplied with pipe gas.

We have had a net addition of 54 industrial and commercial consumers and thus as on date we have over 3,800 industrial and commercial customers.

We are now operating 236 CNG stations, supplying CNG to 692,000 vehicles and our aggregate of steel and PE pipeline network stand at 5,310 kilometers.

With respect to our Raigad GA we have about 8,900 domestic PNG connections in Uran and adjoining areas.

Gas supply to major towns like Pen, Uran and Karjat is being planned through the virtual pipeline network to begin with.

In January 2019, the company has received critical permissions from various authorities for laying pipelines in Raigad GA.

Three CNG stations were added during the quarter and with this, ten CNG stations are currently operational in Raigad.

Presently CNG sales in Raigad is 27000 kgs and is expected to go up when some more CNG stations become operational in coming months.

During the quarter, we have seen a growth of 7.4% in overall sales volume over the corresponding quarter in the previous year.

CNG sales volume grew by 6.9%, Domestic sales volume grew by 9.6% while the industrial and commercial sector sales grew by 8.6%.

Overall the PNG volume grew by 9%.

Gross margin is higher in value terms in the current quarter as compared to responding quarter in the previous year because of higher volumes in CNG and PNG and better price realization across all customer categories.

EBITDA margin was 29.6% at Rs.214 Crores in the current quarter as compared to 30% at Rs.176 Crores in the corresponding quarter of the previous year.

Net profit after tax grew by 27.4% from Rs.105 Crore in the corresponding quarter of previous year to Rs.133 crore in the current quarter.

Probal Sen: · Sir would you have the Q3 number also handy…

Sir would you have the Q3 number also handy…

Okay.

Sir the other question I had was with respect to this other expenses, I think Mr. Datta mentioned about the broad reasons, is it possible to get more specifics given the sharp 19% increase in the other Opex number on a Y-o-Y basis.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Probal Sen: · Sir would you have the Q3 number also handy…

Yes, whichever sir Y-o-Y or Q-o-Q both ways it has actually gone up.

So whichever data you have would be happy to have sir.

Sir is higher level of activity in Raigad by any means, source of the higher Opex, I am asking from a sustainability perspective in terms of what we should be looking at for FY2020 in terms of run rate.

Sure sir that is very helpful.

One last question, guidance on volumes for next year remains at that 6% to 7% range and can we get the number of stations that you are looking to add for CNG and household connection target for 2020.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Probal Sen: · Sir would you have the Q3 number also handy…

And number of CNG stations to be added sir, any guidance on that.

And household connections, I think the earlier guidance was every year around 0.2 million or so, does that maintain, and does that remain.

So 1,10,000 to 1,20,000 is what we should work with right.

Alright sir.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Jinal Fofalia from Turtle Star Portfolio.

Please go ahead.

Jinal Fofalia

Good evening sir and congrats on decent set of numbers.

Sir I have couple of questions.

My first question is, how many CNG stations do we have as on March 31, 2019 and out of this how many CNG stations are in Raigad.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Moderator · Conference Operator

Thank you very much madam.

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

Please go ahead.

Vishnu Kumar

Very good evening and thanks for your time sir.

Just wanted to get your thoughts on the gross margin decline quarter-on-quarter that is December versus March quarter whether it is on the pricing or the sourcing side if you could just elaborate a little on that.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 alternative fuels like LSHS, the FO or 19 kg LPG cylinders, etc. So if you analyze the revenues for Q4 versus Q3 the price variance for commercial and industrial put together is almost to the extent of Rs.26 Crores negative.

Vishnu Kumar

Now that the prices have started moving up, in general crude has moved up from the end of the, I mean, if I take November, December prices on monthly averages.

So will we see better margins again heading in the next couple of months from April, May?

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 capacity being utilized more and more there is a tendency to go up on those accounts also.

So naturally with substantial portion being variable the expenditure in totality are bound to go up not to speak of the general inflation rate in India, which will affect variable as well as fixed or semi- fixed expenses.

As a thumb rule at least around 12%, 13% total opex goes up, but that is a thumb rule and something similar trend may continue.

Vishnu Kumar

So at least 12% to 13% I mean that the 4% or 5% over and above the volume growth we are expecting it to go up.

Moderator · Conference Operator

Mr. Kumar may we request you to come…

Vishnu Kumar

Okay I will come back in the queue.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Tarun Lakhotia from Kotak Securities.

Please go ahead.

Tarun Lakhotia

Thanks for taking my question.

I have one related to the rising cash and investments on your books.

So if I look at from the time of IPO to now, your dividend payout has reduced from say 55% to 36% while cash balance has now, I mean cash in investments have increased to almost 9.5 billion.

So is there any concrete plan to utilize these cash flows given that we do not have any new license areas beyond Raigad right now.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 opportunities which we will be thinking of that is one of the primary reasons we are still holding on to the cash and not resorting to any excessive or special dividend as such.

Of course you will note that we have already announced total dividend of 200% this year as compared to last two years of 190% so some increase in dividend rate anyway we have done vis-à-vis paid up capital.

So maybe after completing the strategy exercise which we have undertaken we will take a fresh look at the entire surplus which is available with us.

Also there are some contingent liabilities on the balance sheet which you must have seen at least in the previous year which are continuing as of now.

So we need to be cognizant of those facts also and the overall decision will be taken accordingly.

Tarun Lakhotia

Sir I understand that you may not be able to share much about the strategy but if you can give us some at least a qualitative insight is there anything leading to some inorganic opportunities which you are evaluating because if I look at your total cash profits in a year versus the Capex requirement and the dividend payout there is still an accumulation which you are doing.

So maybe if the opportunities are feelingly limited, is there a thinking that you may do some buyback and why not buy the stock at least given the kind of cash balance which we have got at the balance sheet right now.

Moderator · Conference Operator

Thank you.

The next question is from the line of Niraj Mansingka from Goldman Sachs.

Please go ahead.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

IR REPRESENTATIVE · Management

Sir just a book keeping question, how much is the PMT proportion for the CNG for the quarter and the Q3.

No sir, just this question on Q4 last year, Q4 this year and Q3 this year, so all these three data points I wanted, that is all.

Thank you.

No that is all sir.

Thank you.

But sir you are telling that the average of the year was lower than the Q3 is that the right assessment or that number that 0.554 you gave was for Q4.

Okay, got it sir.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Gagan Dixit from Elara Capital.

Please go ahead.

Gagan Dixit

So my question is now many state governments are pushing for the EV infrastructure like Delhi and Kerala.

So what is your thought on the potential risk from the EV you see in the next three to five years especially on the BEST buses.

Any thoughts on that sir.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 Supreme Court in the IGL versus PNGRB case.

The PNGRB is yet to renotify tariff regulations in line with the Act.

So once that happens then there will be a period of data filing, etc. tariff determinations which may take a few months.

Gagan Dixit

So sir any thoughts how much time it might take for any initial regulation to come, you have any idea about it sir.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Nitin Tiwari

Good evening Sir, thanks for taking my questions.

Sir it is related to basically marketing and infrastructure exclusivity for you in the current GAs.

So I suppose the marketing exclusivity has ended.

So when is the infrastructure exclusivity getting over and then I will follow-up after you have answered that.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 tariff and ask the third party to pay tariff on those.

So would it be that you will be basically determining the tariff or your regulator would be determining it, how it would be like to determine?

May 10, 2019

Moderator · Conference Operator

Thank you.

The next question is from the line of Rohit Ahuja from Bank of Baroda Capital.

Please go ahead.

Rohit Ahuja

Hi sir, thanks for the opportunity.

Sir wanted some clarity on the industrial and commercial volumes in terms of pricing we saw this quarter margins declining while simultaneously we are also seeing spot LNG prices coming out sharply.

So how does this translate in this quarter currently the running quarter of Q1 FY2020 onwards and do you see a recovery in margins or it is going to be difficult to predict right now.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Rohit Ahuja

So in a nutshell can we say what you mentioned earlier that the other expense component will continue to rise in the range of 8% to 10% for you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Kashyap Jhaveri from Emkay Global.

Please go ahead.

Kashyap Jhaveri

Sir I joined the call a bit late but if you could help me with the realizations in industrial and commercial segment, the sort of pressure in terms of realization if you could quantify.

Moderator · Conference Operator

Thank you.

The next question is from the line of Vassim Shah from CapGrow Capital.

Please go ahead.

Vassim Shah

I just want to know some of the highlights from the recent auction that was conducted by PNGRB in the tenth auction held two months back; if you could just share some highlights why was it you guys didn’t win any GA’s were you too conservative or other bidders were being too aggressive.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 were more realistic on our biding numbers but then many entities were extremely aggressive and they are the ones who got a lot of licenses.

Vassim Shah

Okay and that was it from my side.

Thank you.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Manikantha Garre

Sir may I check with you what is the current pipeline utilization across the infra.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhijeet Vora from Sharekhan.

Please go ahead.

Abhijeet Vora

Yes sir.

I just missed up on the infrastructure exclusivity which will be ending for GA I in April 2020 right.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Abhijeet Vora

And I just missed on one more point the sales realization is Rs.37 per SCM versus Rs.44 per SCM for the entire industrial and commercial customers right.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Reena Shah

Sir I wanted to know given the volume growth guidance of 6-7% going forward I wanted a bifurcation of CNG, PNG domestic or industrial if you can give something.

Moderator · Conference Operator

Thank you.

The next question is from the line of Rajesh Agarwal from Moneyore Advisors.

Please go ahead.

Rajesh Agarwal

Sir my question on the CNG conversion is answered.

My only one question is for the new geography whether it will be through pipeline or it will be through cascades.

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Rajesh Agarwal

Raigad, yes.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Vidhayadhar Ginde

Thank you.

So couple of questions I wanted to ask one was in terms new competition emerging, one of the reasons why new competition is unlikely to emerge is because especially for CNG and domestic PNG you have access to gas at first priority for APM gas which only you are entitled to.

Any potential entrant would not get access to that gas is that not the biggest entry barrier for a new player?

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019

Vidhayadhar Ginde

Okay great.

Thanks a lot to the management for answering all these questions and thank you to everyone we will end the call here.

The management wants to summarize before we end the call.

Moderator · Conference Operator

Thank you very much sir.

Ladies and gentlemen, on behalf of ICICI securities that concludes this conference.

Thank you for joining us and you may now disconnect your lines.

Questions and answers

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR

May 10, 2019 Compared to immediately preceding quarter current quarter has lesser number of days and as a result overall sales volume is lower by 0.7%.

Due to strike in BEST services, we lost some volumes and CNG volume is lower by 1.1%, domestic volume is lower by 0.9%; however the industrial and commercial sector grew by 1.5%.

Gross margin grew marginally to 48.9% as compared to 48.8% recorded in the immediately preceding quarter.

The Company, however, faced a decline in the EBITDA of Rs.7.91 per SCM as compared to Rs.8.77 per SCM in the previous quarter due to lower I&C sales realization and higher Opex on account of CSR, repairs and certain provisions considered.

Net profit after tax declined by 10.2% from Rs.148 Crores in the preceding quarter to Rs.133 Crores in the current quarter.

During the year overall sales volume grew by 9.2% compared to the sales volume of previous year.

CNG sales volume also grew by 9.2%.

Domestic sales volume grew by 10.7% and industrial and commercial sector grew by 7.8%.

Overall the PNG volumes grew by 9.2%.

During the year EBITDA has increased to Rs.8.22 per SCM as compared to Rs.7.91 per SCM in the previous year; however gross margin is at 49.6% as compared to 53.7% recorded in the previous year.

Net profit after tax grew by 14.3% from Rs.478 Crores in the previous year to Rs.546 Crores in the current year enabled by higher volumes and improved EBITDA in rupees per SCM terms.

With this, I conclude and would now like to open the floor for questions.

Thank you very much.

Moderator · Conference Operator

Thank you very much sir.

Ladies and gentlemen, we will now begin the question and answer session.

The first question is from the line of Probal Sen from Centrum.

Please go ahead.

Probal Sen: · Sir would you have the Q3 number also handy…

Thank you for the opportunity sir.

I had a couple of questions.

One, would it be possible to share as in previous quarter the industrial and commercial sales volume for this quarter separately.