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
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
MR. DEEPAK SAWANT - DEPUTY MANAGING DIRECTOR -
MR. SUNIL RANADE – CHIEF FINANCIAL OFFICER -
MR. RAJESH WAGLE – SENIOR VICE PRESIDENT (MARKETING) – MAHANAGAR GAS LIMITED
August 9, 2019
Moderator · Conference Operator
Ladies and gentlemen good day and welcome to Mahanagar Gas Limited Q1FY2020 Earnings Conference Call, hosted by Ambit Capital.
As a reminder, all participant lines will be in the listen-only mode.
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. Vivekanand Subbaraman from Ambit Capital.
Thank you and over to you Sir!
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 customers are supplied with imported gas, procurement price will be the key factor rather than availability of gas.
Under current demand supply scenario of LNG, spot gas prices witnessed a downward trend for almost two quarters.
Our conscious decision to rely more on spot gas than on mid-term or long- term contracts has helped us to improve margin in industrial and commercial category.
Now coming to MGL’s operations, we are rapidly expanding our CGD network in the existing license areas.
During the quarter, 26,638 domestic households were added.
Today, we have more than 1.17 million household customers supplied with pipe gas.
We had a net addition of 42 industrial and commercial consumers and thus as on quarter end, we had 3,866 industrial and commercial customers.
Besides, as on quarter end, we had 240 CNG stations, supplying CNG to around 7 lakhs vehicles and our aggregate of steel and PE pipeline network stood at 5,367 kilometers.
With respect to our Raigad GA, we added more than 3,200 domestic PNG connections in Uran and adjoining areas in this quarter.
Gas supply to major towns like Pen, Uran and Karjat is being planned through the virtual pipeline network to begin with.
Early this year, the company has received critical permissions from various authorities for laying pipelines in the Raigad GA.
Three CNG stations were added during the quarter and with this, 13 CNG stations were operational at quarter end in Raigad.
CNG sales in Raigad reached the level of 24,684 kgs a day 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 3.3% in overall total sales volume over the corresponding quarter in the previous year.
CNG sales volume grew by 2%, domestic sales volume grew by 9.4% while the industrial and commercial sector sales grew by 4.7%.
Overall the PNG volume grew by 7%.
Gross margin is higher in value terms in the current quarter as compared to corresponding quarter in the previous year because of higher volumes in CNG and PNG and better price realization across all customer categories and lower prices for spot gas.
EBITDA margin was 36.6% at INR 277 Crores in the current quarter as compared to 34.1% at INR 211 Crores in the corresponding quarter of the previous year.
Net profit after tax grew by 32.7% from INR 128 Crore in the corresponding quarter of previous year to INR 170 Crores in the current quarter.
Compared to immediately preceding quarter, there is a slight decline in current quarter total sales volume by 0.2%.
CNG volume is lower marginally by 0.3%, the industrial and commercial sector is lower by 2.7%.However, domestic volume grew by 3.4%.
Gross margin is 53.8% as compared to 48.9% recorded in the immediately preceding quarter.
There is a sharp increase in EBITDA, which grew to INR 10.25 per SCM as compared to INR 7.91 per SCM in the previous quarter.
Probal Sen: · Sir, with respect to let us say what you are seeing in July, is there any monsoon impact that we
Sir, with respect to let us say what you are seeing in July, is there any monsoon impact that we are seeing, should we be looking at Q2 also being slightly muted for the CNG sector?
Is that a fair way to look at it?
Second question I had of course was on the margins.
We have reported pretty much record margins- as well as both gross margins and EBITDA per SCM.
Our estimates suggests that the gross margins for the commercial & industry have actually increased very sharply in Q1. So, just wanted to understand that are we seeing the same trend, given the spot LNG prices remain low
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 and the second part is that can we quantify how much spot LNG is there in our portfolio?
We understand that earlier it was around 0.2 to 0.3 MMSCMD of spot that we were consuming.
Is it at that same level or has that gone up?
Probal Sen: · Sir, with respect to let us say what you are seeing in July, is there any monsoon impact that we
Got it.
The one way to conclude would be that the realization might see a bit of a drop given the crude prices and therefore alternates have dropped, but spot prices if they remain at this level that benefit will continue at least in the foreseeable future, is that a fair way to look at it?
Alright.
Thank you very much, Sir.
I will come back for more questions.
Moderator · Conference Operator
Thank you.
The next question is from the line of Amit Rustagi from UBS Global.
Please go ahead.
Amit Rustagi
Thank you for the opportunity.
Sir, could you explain us about the volume sold to State Transportation Corporations?
How much is it as a percentage of CNG sold and what is the outlook on this volume, given the BEST is now talking about addition of new CNG buses in Mumbai?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Amit Rustagi
Sir, second question remains that how do we look at the bidding opportunities? like our MD has just explained that India has a great opportunity in terms of CGD sector, but if you see we have restricted ourselves to 2 to 3GA’s only and not able to get any new GA in the last few bidding rounds.
So, are we going to be more aggressive in terms of or going into some joint venture with the cities which have already been awarded?
What is our strategy of growth outside the existing GA’s?
Moderator · Conference Operator
Thank you.
The next question is from the line of Rohit Ahuja from BOB Capital Markets.
Please go ahead.
Rohit Ahuja
Sir, thanks for the opportunity.
Just wanted to know about your volume growth strategy.
What are we doing to increase the rate of volume growth?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Yogesh Patil from Reliance Securities.
Please go ahead.
Yogesh Patil
Thanks for giving me an opportunity, Sir.
In July 2019, OMCs have reduced the LNG prices.
They reduced the nonsubsidized LPG cylinder prices by substantial amount.
Is this fall in LPG
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 prices creating competition on Mahanagar Gas CNG commercial prices and have you taken any price cut on CNG commercial product recently?
Moderator · Conference Operator
Thank you.
The next question is from the line of Manikantha Garre from Axis Capital.
Please go ahead.
Manikantha Garre
Thank you for the opportunity, Sir.
The 240 CNG stations that you have mentioned earlier also includes the 13 stations at Raigad?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Manikantha Garre
Sir, I can just follow up to that question, how many of this 240 CNG stations are in collaboration with OMCs as of now?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vishnu Kumar from Spark Capital.
Please go ahead.
Vishnu Kumar
If you could just give the LNG delivered cost last quarter and currently what is the price that you are getting at?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of S Ramesh from Nirmal Bang.
Please go ahead.
S. Ramesh
Good evening gentlemen.
Thank you very much.
First of all in terms of your industrial and commercial segments, what is the discount based on the current price relative to the commercial LPG and LSHS?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Moderator · Conference Operator
Thank you, Sir.
The next question is from the line of Nilesh Ghuge from HDFC securities.
Please go ahead.
Nilesh Ghuge
Sir, my question is on capex.
What is our planned guidance for this year for the capex?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vidyadhar Ginde from ICICI Securities.
Please go ahead.
Vidyadhar Ginde
Thanks.
Good afternoon, just wanted to check there is a belief that if this exclusivity were to go and the private players have to come, it is possible only if the PNGRB act is amended.
Do you agree with this on the Supreme Court ruling in the case of IGL in 2015?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
August 9, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Anuj Jain from Value Quest Capital.
Please go ahead.
Anuj Jain
Thanks for the opportunity, Sir.
I have a query regarding Raigad, so can you provide some light on the opportunity size of Raigad in terms of total volumes of PNG or CNG. we can do, total revenues that we can get from Raigad and second part to it is that what amount of capex we have already done for Raigad and what amount of capex we have to further do to get that revenue and volumes from Raigad?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 permissions from police and PWD.
All these are the authorities through which permissions will be required.
Anuj Jain
And currently what volumes are we doing in Raigad?
Moderator · Conference Operator
Thank you.
The next question is from the line of Jigar Shah from MayBank.
Please go ahead.
Jigar Shah
My question pertains to the volume growth trajectory of the company given that we have seen tailwind from adoption of CNG by automakers such as Maruti and also BSVI becoming reality in the next 6 months, how do you see the potential for more mass CNG adoption by automobile users and can that really step up our growth rate? that is my question if any more light you can throw on the subject?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Jigar Shah
Thank you Sir and wish you all the best.
Moderator · Conference Operator
Thank you.
The next question is from the line of Abhijit Bora from Sharekhan.
Please go ahead.
Abhijit Bora
Sir, can you just specify why was the CNG volumes lower in this quarter, I understand there was base impact and there was a lower demand from the BEST, but apart from this was there any reason for the down in sales volumes?
Moderator · Conference Operator
Thank you.
The next question is from the line of Nitin Tiwari from Antique Stock Broking.
Please go ahead.
Nitin Tiwari
Sir, good evening and thanks for taking my question.
It is related to your industrial and commercial segment, so in the beginning of the call you have mentioned that you added close to about 42 industrial and commercial consumers, so if you can just help me with the breakup of the total industrial and commercial consumers that you have, which is 3,866 in terms of one industrial and how many of them are commercial and then a related question that despite addition of more consumers, your sale in industrial and commercial segment actually went down on a sequential basis.
So, was that a result of higher pricing that has been there and then I remember in one of your previous calls, you had mentioned that industrial consumer segment as a category is sort of de-growing because lot of industries are shifting out of Mumbai because of higher land prices.
So, how do you see this segment going forward in terms of pricing, what is the strategy that you are following?
Are you looking into growing business in this segment by offering them better pricing or you will be sweating the segment out because whatever is there has to be maximized in terms of margins?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 between large industry and small companies.
As we mentioned earlier, the industrial segment is 8% of our volumes, commercial is 6% of our volumes.
If you look at the last quarter, the industrial volumes were down compared to Q4 of last financial year and as we mentioned there is a seasonality which plays and summer month typically volumes also go down
Nitin Tiwari
Sir, it is not an outcome of pricing that you are seeing because if I look at 6% say commercial volume, which would still be slightly lower than what you would have in the first quarter of FY2019, so I do not have the exact number, here I am only going by the direction that you gave, so first quarter FY2019, it was about 16.3 and this quarter it should be around 16, I am just looking at directionally?
Moderator · Conference Operator
Thank you.
The next question is from the line of Chandrasekhar Sridhar from Fidelity.
Please go ahead.
Chandrasekhar Sridhar
Thanks.
First question is that the new Mumbai Development Control Regulation that is supposed to provide 35 slots for fuel retailing; has that actually happened and your thoughts on that and then will there be opportunities to set setup stations in that?
That is the first question.
The second is that I think the way it looks like your input cost from October 1 ,it is most likely that domestic gas prices may actually trend down, if that were to happen what is the philosophy on you just on your own pricing?
Would you actually lower prices then or are we keeping them where they are?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Chandrasekhar Sridhar
It is most likely that on 1st of October, that the domestic gas price should be likely revised lower?
Moderator · Conference Operator
Thank you.
The next question is from the line of Reena Shah from Ashika Stock Broking.
Please go ahead.
Reena Shah
Basically my first question is there has been some revision in pricing upwards; due to increase in tariff in pipeline, so I just wanted to know what kind of percentage increase in cost did you witness and what percentage of that did you pass on?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Reena Shah
Sir, last question that the CNG conversions, you told that you expect some 2,000 private vehicles and 4,000 auto’s to convert.
Do you see same kind of conversions today or conversions have reduced?
Moderator · Conference Operator
Thank you.
The next question is from the line of S Ramesh from Nirmal Bang.
Please go ahead.
S. Ramesh
Thank you once again.
Just a couple of follow up questions, one is in terms of the capital expenditure, can you give us some breakup in terms of how much for CNG stations and how much for your PNG pipeline and how many stations are left to be completed in the 46 stations’ target?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Moderator · Conference Operator
Thank you.
Next question will be the last question for the session, which is from the line of Jayesh Gandhi from Harshad Gandhi.
Please go ahead.
Jayesh Gandhi
Sir, confirmation that in Greater Mumbai and Thane district we do not have any marketing exclusivity, right?
And Raigad is getting over in 2020?
Moderator · Conference Operator
Thank you.
I now hand the conference over to the management for closing comments.
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019
Moderator · Conference Operator
Thank you.
On behalf of Ambit Capital we conclude this conference.
Thank you for joining us.
You may now disconnect your lines.
[identifier removed]
Registered Address
MGL House, G-33 Block, Bandra-Kurla Complex, Bandra (East), Mumbai, Maharashtra, 400051
Website
www.mahanagargas.com
CIN
L40200MH1995PLC088133
Questions and answers
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE – SENIOR VICE PRESIDENT
August 9, 2019 EBITDA per SCM has primarily increased due to substantially higher gross margin in the industrial and commercial customer categories.
Better sales realization and prudent decision to feed these sectors through spot gas rather than midterm and long-term contracts helped us to achieve such margins.
Also opex was higher on an account of CSR, repairs and certain year-end provisions in the previous quarter.
Net profit after tax grew by 27.6% from INR 133 Crores in the preceding quarter to INR 170 Crores in the current quarter.
With this, I conclude and would now like to open the floor for questions.
Thank you very much.
Moderator · Conference Operator
Thank you.
We will now begin the question and answer session.
The first question is from the line of Probal Sen from Centrum Broking.
Please go ahead.
Probal Sen: · Sir, with respect to let us say what you are seeing in July, is there any monsoon impact that we
Good afternoon, Sir.
Thanks for the opportunity.
Two questions from my side, one with respect to the volume growth, it has been a little bit lower than the last three or four quarters average where we have seen particularly strong growth.
So I just wanted to understand that is it a base effect that has played out or any other specific reason and the second part to this question is, given the ferocity of the monsoon one has seen in Mumbai in July and continuing in August, are we seeing any impact of that in terms of CNG volume offtake? that is the first question, Sir?