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 - MAHANAGAR GAS LIMITED MR. S.
M.
RANADE - CHIEF FINANCIAL OFFICER -
MR. RAJESH WAGLE - SENIOR VICE PRESIDENT (MARKETING) - MAHANAGAR GAS LIMITED
November 13, 2019
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to the Mahanagar Gas Limited Q2 FY2020
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019 On the consumption side, the power sector consumes about 31% of the locally produced gas while the fertilizer and city gas sector consume 25% and 22% respectively.
Domestic gas production has its own challenges but with favorable government policies availability of domestic gas for the CGD sector is likely to continue in the foreseeable future.
As industrial and commercial customers supplied with imported gas, procurement price of market priced gas will be the key factor rather than availability of gas for this segment.
The price of locally produced natural gas based on government set formula has fallen to $3.23 per MMBTU for the period from October 2019 to March 2020.
The price was $3.69 per MMBTU during April to September 2019 period.
On the current demand supply scenario of LNG spot gas prices witnessed 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 margins in industrial and commercial categories.
MGL today has a strong incumbent in the CGD sector with significant strengths and core capabilities.
MGL has presence in attractive and contiguous portfolio of geographical areas of Mumbai, Thane and Raigad where there are significant opportunities to capture growth in both CNG and PNG sectors.
Now coming to MGLs’ operations, we are rapidly expanding our CGD network in the existing license areas.
During the quarter 32241 domestic households were added.
Today we have established connectivity with more than 1.2 million household customers for supply of pipe gas.
In the second quarter we had a net addition of 47 industrial and commercial customers and thus as on quarter end we had 3923 industrial and commercial customers.
Besides as on quarter end, we had 244 CNG stations supplying CNG to around 7 lakh vehicles and our aggregate of steel and PE pipeline network stood at 5393 kilometers.
With respect to our Raigad geographical area, we added more than 4300 domestic PNG connections in the license area during the quarter.
Gas supply to major towns like Pen, Uran and Karjat is 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 Raigad GA.
At second quarter end, 13 CNG stations were operational in Raigad.
CNG sales in Raigad reached the level of 30460 kg per 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 1.3% in overall sales volume over the corresponding quarter in the previous year.
Moderator · Conference Operator
Thank you.
The next question is from the line of Lokesh Manik from Vallum Capital.
Please go ahead.
Lokesh Manik
Good afternoon Sir.
Thank you for the opportunity.
My question was regarding the statements made by the Minister of Petroleum and Oil & gas regarding freeing up of the gas prices.
So, given that our business model is very sensitive to and is dependent on the APM gas for the CNG business and how would this play out if the gas prices are freed up, I mean would our margin get impacted in that front?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Lokesh Manik
No. It was mentioned that these would be for pre-NELP and post-NELP blocks also.
Moderator · Conference Operator
Thank you.
The next question is from the line of Chinmay Gandre from Bharti AXA Life Insurance.
Please go ahead.
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Chinmay Gandre
Yes Sir.
Thank you for taking my questions.
Sir in the previous call, you had mentioned that the state transport buses I think Best mostly I mean there were buses which were scrapped because of which there was a loss of volumes.
So, this was in Q1 so I mean have new buses been brought up by the State Transport Corporation or in Q2 also we had impact of that and what is the status of the same?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Chinmay Gandre
Okay.
And in terms of the 15 industrial customer also which you said there is a change in pattern so that has also continued in the Q3 or there is some change?
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.
Thank you very much.
First thing can you give us some update on the status of the concept paper for the open access for city gas networks?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
S Ramesh
Okay Sir.
Thank you very much.
Moderator · Conference Operator
Thank you.
The next question is from the line of Vidyadhar Ginde from ICICI Securities.
Please go ahead.
Vidyadhar Ginde
Thank you.
Just wondering if this gas price increased if it were to happen, of deregulation of gas, and if that is accompanied by new players being allowed, it is a possibility that the thinking of introducing new players, so as to put it interest of the consumers so that the entire gas cost is not passed on to the customer.
Do you see something of that happening and what kind of timeframe, anyone if the gas cost were to go up, do you expect it to go in one shot or over a period of time, mix of cheap gas?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Rajesh Agarwal from Money Advisors.
Please go ahead.
Rajesh Agarwal
Sir recently LPG prices have down, so are you seeing a shift from PNG to LPG for the industrial uses and for the auto also?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Kunal Kothari from BP Equities.
Please go ahead.
Kunal Kothari
My questions have been already answered.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Dhaval Shah.
Please go ahead.
Dhaval Shah
One question.
Just need some understanding, the BEST buses in Mumbai, they all are not on CNG, am I correct?
Moderator · Conference Operator
Mr. Shah Can you speak closer to the handset please.
Dhaval Shah
Yes.
So that would be roughly what, 50%-60% of the entire fleet?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Dhaval Shah
Now that rule has been made compulsory by whom?
Management That was done by the State Transport Authority, because what happened was, the original thing was the old petrol and diesel taxis and rickshaws are not allowed.
There was an order in somewhere around 2002 by the Bombay High Court that the public transport vehicle older than eight years cannot run in Mumbai.
They have to buy a new one or go to CNG.
But then the public transports auto rickshaws and taxi was found converting to CNG so lucrative that they started inducting brand new vehicles itself on CNG.
Got it.
So, all that old Fiat, Padmini models got converted into…
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Nilesh Dubey from HDFC Securities.
Please go ahead.
Nilesh Dubey
Sir one bookkeeping question.
The selling price for industrial and commercial.
Can you share that and also the volume numbers for the industrial and commercial?
Manangement
Yes.
Industrial net realization for Q2 you want correct?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Nilesh Dubey
Yes Sir.
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Varadarajan from Systematix.
Please go ahead.
Varadarajan
Thank you.
Sir in terms of your infrastructure exclusivity, is there any talks going on in terms of extending the period?
Moderator · Conference Operator
Thank you.
The next question is from the line of S Ramesh from Nirmal Bang.
Please go ahead.
S Ramesh
Just a follow up question.
So, can you give us a breakup on the capex numbers you shared, you are talking about Rs.460 Crores for the full year and Rs.500 Crores for the next year.
How much will go into CNG and how will they be split between Mumbai, Thane and Raigad?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Rohit Ahuja from BOB Capital Market.
Please go ahead.
Rohit Ahuja
Hi sir thanks for the opportunity.
Sir I just have two questions.
One what is the strategy to increase volume growth over the next few years and second with now GAIL being the sole promoter, do we see any change in strategy in terms of the way you, are going to bid for new areas and any other expansion strategies, if you could clarify?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Moderator · Conference Operator
Thank you.
The next question is from the line of Sahil Jain from BP Wealth.
Please go ahead.
Sahil Jain
Sir I wanted to ask we can see a dip in the employee cost on sequential basis.
Can you please say why it is so?
Moderator · Conference Operator
Thank you.
The next question is from the line of Manikanta Garre from Axis Capital.
Please go ahead.
Manikanta Garre
Wanted to check with you if there is any CNG stations being started by Gujarat Gas in the peripheral areas and have we been seeing any volumes being more to those CNG stations.
Is there something sort of that happening.
Moderator · Conference Operator
Thank you.
The next question is from the line of Dhaval Shah from Girik Capital.
Please go ahead.
Dhaval Shah
Sir in terms of opportunity from the state transport buses, what would be this opportunity size, have we expand more on Raigad, in Thane and then so conversion happens to CNG, as availability of gas is there.
Anything you can quantify?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
November 13, 2019
Dhaval Shah
Okay so value added service would be in what like you are giving like a bundle package for the car PNG and for house gas something like that?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vardharajan from Systematix.
Please go ahead.
Vardharajan
Thank you.
Sir you are talking about the penetration levels both on domestic PNG as well as CNG, domestic PNG what would be the peak penetration you would expect, will it be around 70%-80% and when would you expect to reach that level and in the case of CNG again what is a kind of penetration level, you will expect in terms of equilibrium and how quickly you can do that?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Vardharajan
How about the CNG sides?
Moderator · Conference Operator
Thank you.
The next question is from the line of Anchal Agarwal from Care Portfolio Management Services.
Please go ahead.
Anchal Agarwal
Considering the price cut given by PNGRB was 12%, what has been the percentage that we have passed on to our customer to the October 1?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019
Anchal Agarwal
So do we see any impact on the margins from this?
Moderator · Conference Operator
Thank you.
As there are no further questions, I now hand the conference over to the management for closing comments.
Thank you.
Ladies and gentlemen, on behalf of SBICAP Securities Limited that concludes 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
November 13, 2019 CNG sales volume grew by 1%, Domestic sales volume grew by 4.5% while the industrial and commercial sector sales grew by 0.2%.
Overall, the PNG volume grew by 2.2%.
Gross margin is higher in value terms in the current quarter as compared to corresponding quarter in the previous year mainly due to marginally higher volumes in CNG and domestic PNG segments with better price realization and lower cost of spot gas used for industrial and commercial sectors.
EBITDA margin was 34.9% at Rs.273 Crores in the current quarter as compared to 31.8% at Rs.221 Crores in the corresponding quarter of the previous year.
The company elected to exercise lower tax rate of 25.17% as introduced by the taxation Law Amendment Ordinance 2019 during the quarter.
As a result, after accounting credit for reduction in opening deferred tax liability of Rs.56.7 Crores.
Net profit after tax grew by 98.6% from Rs.136 Crores in the corresponding quarter of previous year to Rs.271 Crores in the current quarter.
Compared to immediately preceding quarter, there is an increase in current quarter total sales volume by 2.2%; CNG volume is higher by 2.8%.
Industrial and commercial sector is higher by 4.6%; however, domestic volume is lower by 3.8%.
Gross margin is 51.4% as compared to 53.8% recorded in the immediately preceding quarter.
Industrial and commercial price realizations linked to alternate fuel were lower as price of bulk LPG, LSHS and LDO droped in the range of 7.5% to 13% compared to previous quarter.
With marginal increase in exchange rate and supply disruption from ONGC end for few days during August and September, volumes were impacted.
As a result, there is a marginal drop in EBITDA from Rs.276.8 Crores in Q1 to Rs.273.4 Crores in Q2. Net profit after tax grew by 58.96% from Rs.170.2 Crores in the preceding quarter to Rs.270.6 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 very much.
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
Good afternoon Sir.
Thanks for the opportunity.
I had two questions.
One you have earlier also maintained that the long-term volume growth guidance remains at between 5% and 6% from CAGR respective for the next let us say three to five years, but obviously in the first half we have seen that volume growth has slipped a little bit.
Any even rough cut indication you can give in terms of H2 run rate that we can expect, that was my first question and the second question was that in this quarter you already mention the ONGC disruptions that
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT
November 13, 2019 caused volume decline.
Can we also look at the way that the rainfalls have come and have persisted over much longer than normal?
Has that had an impact on the CNG volumes as well in Q2?
Those were my questions.