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
Moderator · Conference Operator
MR. MANIKANTHA GARRE - AXIS CAPITAL LIMITED MAHANAGAR GAS
Mahanagar Gas Limited · February 10,2020
February 10,2020 Ladies and Gentlemen, Good Day and welcome to the Mahanagar Gas Limited Q3 FY20
February 10,2020 in North East Asia have fallen to unusually low levels of about $3 US for MMBTU.
The LNG market has been hit by a dip in Asian demand due to warmer than usual winter temperature and the Coronaviruses outbreak while the market has remained to be very well supplied by projects around the world.
Our conscious decision to rely more on spot gas than on mid term or long term contracts have helped us to improve margins in the industrial and commercial categories.
In order to further expand CGD network, PNGRB is in the process of finalizing geographical areas or GA for forthcoming 11'h CGD bidding round.
In this regard, PNGRB has released a tentative list of 44 GA for suggestions and views from the stakeholders.
We shall be evaluating the offered GA's once the 1 l'h bidding round is formally launched.
MGL today is a strong incumbent in the CGD sector with significant strength and core capabilities.
MGL has presence in attractive and contagious GA of Mumbai, Thane and Raigad where there are significant opportunities to capture growth in both CNG and PNG segments.
Coming to MGL operations, we are rapidly expanding our CGD network in the existing license areas.
During the recently concluded quarter 31,006 domestic households were added.
Today, we have more than 1.24 million household customers connected with pipe gas.
We also had a net addition of 74 industrial and commercial consumers and thus as on quarter end we had 3,997 industrial and commercial customers.
Besides as on quarter end we had 248 CNG stations supplying CNG to around 7.42 Iakh vehicles and our aggregate of steel and PE pipeline network stood at 5,513 kilometer.
With respect to our Raigad GA we added more than 6,000 domestic PNG connections in this quarter, 13 CNG stations are currently operation in Raigad.
CNG sales in Raigad has touched 32,000 Kgs a day and is expected to go up when some more CNG stations become operational in coming months.
During the quarter, we are seeing a growth of about 3% in overall total sales volume over the corresponding quarter in the previous years.
CNG sales volumes grew by 2.4%, domestic sales volume grew by 6.6% while the industrial and commercial sectors sales grew by 3%.
Overall, the PNG volume grew by 4.8%.
Gross margin is higher in value terms in the current quarter as compared to corresponding quarter in the previous year mainly due to higher volumes in CNG and domestic PNG sectors with better price realization and lower cost of spot gas used for industrial and commercial segments.
EBITDA margin was 34.8% at Rs.
259 crore in the current quarter as compared to 31.8% at Rs.
239 crore in the corresponding quarter of the previous year.
Net profit after tax grew by 25.4% from Rs.
148 crore in the corresponding quarter of previous year to Rs.
186 crore in the current quarter.
Compared to immediately preceding quarter there is a marginal increase in total sales volume in current quarter by 1.8%.
CNG volume is higher by 1%, domestic volume is higher by 8.2%, however industrial and commercial sector is marginally lower by 0.3%.
Gross margin is 52.1% as compared to 51.4% recorded in the immediately preceding quarter.
Industrial and commercial price realizations linked to alternate fuels were lower as prices of bulk LPG, LSHS, LDO and 19 kg cylinder dropped in the range of 2% to 17% MAHANAGAR GAS
Nitin Tiwari: · And we are going to spend about almost same sort of number in next year as well 450 to 500?
So, no decision is expected at least in this quarter that is what?
Secondly sir just a couple of book keeping questions so if you can bifurcate, give us the bifurcation of volumes between industrial and commercial and the CAPEX number for 9 month so far and the outlook for next year?
Yes, Q3 sir industrial and commercial volumes separately?
And we are going to spend about almost same sort of number in next year as well 450 to 500?
MAHANAGAR GAS
Mahanagar Gas Limited · February 10,2020
February 10,2020 It depends on the permissions obviously which is always an important factor, but yes otherwise it could be in that region.
Thank you.
The next question is from the line of Vijayant Gupta from Edelweiss.
Please go ahead.
I had a question around open access so ultimately how do you see the CGD structures I mean given the split of GAIL into transmission and marketing, do you think that we would have CGDs as well split into distribution and marketing and in that event how do you see the marketing operation faring given that GAIL and OMCs have tied up gas at the source and secondly in terms of promoter shareholding, so GAIL 32% in MGL, how do you see that shareholding panning out?
So as regards the distribution between infrastructure and marketing the regulations for transmission are a bit different from distribution.
In the transmission segment, there is some language around separation of these two functions clearly whereas in CGD gas distribution or regulations that requirement does not come up.
So, what we understand the government and the regulator are trying to do in this yes, they are definitely talking of opening up the networks especially of the older CGD players which would mean provide an access to our customers at a tariff which is decided by the regulator.
However, there is still some work to be done on that because tariff determination, regulations have not yet been framed and notified by the PNGRB So it would take a little bit of time before that finally fructifies.
Vijayant Gupta
Is not there a conflict of interest I mean one entity owning both the infrastructure as well as marketing I mean it is a similar issue as GAIL did?
Mahanagar Gas Limited · February 10,2020
February 10; 2020
February 10,2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Roshan Raghavan from Ithought.
Please go ahead.
Anubhav Aggarwal
My question was on the potential for CNG going forward with automobiles, so we have already seen Maruti Suzuki move out of diesel and even more recently Volkswagen group is also considering moving out of diesel if I am right, so I just wanted to know your opinion on the potentials for CNG in private vehicles?
The potential is looking good because diesel with the BS-VI kicking in, vehicle cost the fuel cost can become a barrier, cost conscious market like India.
So, it is a positive for CGD or CNG.
Thank you.
The next question is from the line of Anubhav Aggarwal from Credit Suisse.
Please go ahead.
So, question was on the CNG realization this quarter CNG realizations are down almost like Rs.
1.5 per SCM, I am talking.
September to December quarter, whereas the APM gas cost reduction was much lower, so certainly our CNG margins are little lower per unit margins, can you just throw some light here that why did you choose to let us say cut prices more than this quarter in the APM cost deduction?
Mahanagar Gas Limited · February 10,2020
February 10,2020 say how do you see the segment growing past two quarters were growing at about 2%, 3% volume growth?
Moderator · Conference Operator
Thank you.
The next question is from the line of Sujit Lodha from Birla Sun Life Insurance.
Please go ahead.
Sujit Lodha
So, the NGD order which was implemented in Morbi and NGD stated similar areas in Maharashtra is also polluting so if such similar order is implemented in our area what could be the potential growth in the volume in the industrial side like that we are currently at 0.2 where can we go to?
Moderator · Conference Operator
Thank you.
The next question is from the line of Probal Sen from Centrum Broking.
Please go ahead.
MAHANAGAR GAS
Mahanagar Gas Limited · February 10,2020
February 10,2020 Sir, couple of questions one, was there any discussion on dividend decision in this quarter? and would you be looking at then dividend by the fourth quarter I mean I was just wondering because the release mentioned that there would be a dividend decision ahead of the board meeting that was my first question and second was out of total 248 CNG stations can we get a sense of how many are now on or being run by the OMCs and how much commission on a per SCM or per kg basis we are paying to them right now?
February 10,2020 The next question is from the line of Nilesh Ghuge from HDFC Securities.
Please go ahead.
Sir, what is current sourcing mix between APM, non APM and other sources and spot in Q4 particularly?
Any other question hold on we will tell the same any other question.
Only Q3 and Q4 comparison I want that is it sir?
Q4 of last year you are talking?
Q3 FY20 and the current in a Q4?
Okay we can tell you right now for the month of December for example not that quarter wise figures are readily available we can take it offline, but say as at December the purchases were something like this APM quantity was 1.539 and non APM priority was 0.872, PMT portion was 0.308 and spot was 0.441 this was December which has of course slightly undergone a change because of PMT.
Other details I think we can give you offline.
Thank you.
The next question is from the line of Saurabh Handa from Citigroup.
Please go ahead.
Sir, my first question was just on industrial and commercial realizations if you could share those numbers for the quarter?
Volumes of industrial, commercial.
The realization.
Industrial is Rs.
26.21 per SCM for this quarter and commercial all categories put together was Rs.
32.97 paisa per SCM.
Saurabh Handa
Okay so both these were down quite sharply quarter-on-quarter because of the alternative fuel prices?
Mahanagar Gas Limited · February 10,2020
February 10,2020
Saurabh Handa
Sir and this second question on CNG I mean anything in terms of outlook in the near term, any drivers of improvement in your volume growth beyond sort of 2%, 3% levels?
Moderator · Conference Operator
Thank you.
The next question is from the line of Jigar Shah from Maybank.
Please go ahead.
Jigar Shah
Sorry I think we got disconnected and you I think answered my question pertaining to that the volume could be affected due to the ongoing infrastructure project in the city and I am not sure if I missed anything else, but what I want to also ask is if you can give a bit of color on your CAPEX or a bit of break down in terms of what kind of CAPEX is being undertaken for CNG, PNG and for particularly for the Raigad district and also the pattern for the next year and whether this itself helps you to push the growth rate in volume?
Mahanagar Gas Limited · February 10,2020
February 10,2020 transmission line to CNG outlet.
On the overall CAPEX front I think earlier we talked about we have so far spent 300 crores in this financial year and year end we may see between 450 crores to 500 crores something similar figure should continue for next financial year subject to getting approval from different authorities.
Raigad you talked about I think by this yearend probably we would have spent somewhere around 100 crores cumulative basis and at least around 150 crores will be spent further in the next financial year that is what we aim at once again of course subject to permissions from different authorities including forest department and highway authorities etc .
Jigar Shah
So, sir the bulk of the CAPEX is still happening in the GA 1 and 2 on the pipeline basically on the expansion of pipeline?
Moderator · Conference Operator
Thank you.
The next question is from the line of Yogesh Patil from Reliance Securities.
Please go ahead.
Mahanagar Gas Limited · February 10,2020
February 10,2020 option is to go on a kind of portfolio basis where some gas we could buy the spots, some gas we could buy indexed or linked to some other source, so that is a basically a diversifying our sourcing.
Thank you.
The next question is from the line of S.
Ramesh from Nirmal Bang.
Please go ahead.
Can you give us some sense in terms of the kind of peak volumes you can expect from Raigad once we have the critical margin terms of the CNG stations and the industrial customers?
Potential assessment of Raigad and we have done it showed a platue volume of about 0.6 on MMSCMD.
And how long do you think it will take for it to develop the infrastructure and achieve the volumes?
Well it would take at least three to five year kind of a time horizon.
So, in terms of the incremental CAPEX you are incurring now considering that some of it is for renewals and replacement, what is the kind of return you would generate is there a risk maybe for one or two years you will flatten out or marginally decline?
Management Some drop in the return can be expected, but you know the kind of attractive return presently we have probably few basis points here and there should not matter.
Moderator · Conference Operator
Thank you.
The next question is from the line of Vidyadhar Ginde from ICICI Securities.
Please go ahead.
Vidyadhar Ginde
My first question is regarding this gas pricing in April so do I mean some press report suggesting that there could be a gas price deregulation though it does mention that CGD will be kept out of it, so while answering this question earlier today you have said that let us wait, so do you see that a possibility that gas pricing formula or mechanism may change?
Mahanagar Gas Limited · February 10,2020
February 10.2020 So, you do not expect anything to change in April?
No, I think in April of course price will change.
But not a formula?
As per the notified formula.
And the second question was your growth, so could one of the reasons be strong growth you had last year on that so growth normalize next year and if say CNG use was made mandatory like in Delhi what is the potential in Mumbai?
Well, last year yes growth was stronger so there could be some element of a base effect and relatively lower growth, but again we have been constantly saying that quarter-on-quarter or year-on-year there would be variations and we have been giving a number of five year CAGR in the range of 5% to 6% a few percentage points here and there is always possible.
As regards the potential for CNG in case it is mandated in the city of Mumbai it will basically open up a huge market which is currently untapped which is a commercial goods vehicle segment.
So, it will definitely give I mean there will be a strong double digit growth.
Vidyadhar Ginde
Can you give us some number of so it may take some time, but what is the size of that market if everybody has to convert?
Moderator · Conference Operator
Thank you.
The next question is from the line of Bhavin Gandhi from B&K Securities.
Please go ahead.
Bhavin Gandhi
Sir, there was a news flow regarding CGD policy their state level nodal agencies could be appointed, etc., so do you think there are any practical take away for us from that policy which can come through?
Mahanagar Gas Limited · February 10,2020
February 10,2020
Bhavin Gandhi
And sir second question was relating to the dividend policy itself now with dividend tax going away should one assume that their total payout including dividend tax will continue?
Mahanagar Gas Limited · February 10,2020
February 10.2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Manikantha Garre from Axis Capital Limited.
Please go ahead.
Thank you.
The next question is from the line of Vineet Maloo from Birla Sun Life.
Please go ahead.
Vineet Maloo
It is basically you know was it some more clarity on a dividend policy going ahead because you know this quarter you sort of departed from a tradition of interim dividend, well I understand you need to take into account the sustainability of cash flow, etc., but nothing significant would have changed in terms of CAPEX plans etc I will assume right and so what will be the specific reason to depart from this tradition of declaring the interim dividend at this point in time?
Mahanagar Gas Limited · February 10,2020
February 10,2020 This is not related or is this related to the change in taxation, broadly I just want to understand I do not need specific number or anything like that is this related to the change in taxation treatment or is this related to change in some CAPEX program I mean what is the broad idea?
These factors were also definitely figuring prominently, taxation, CAPEX yes there were two important factors apart from many other things considered by the board.
So there needs to be better communication right when we depart from established tradition otherwise I mean as shareholders we are left with bit of darkness regarding these policies?
We understand probably what right now we can tell you okay all this investor sentiments will be communicated to the board.
Thank you.
The next question is from the line of Amit Rustogi from UBS.
Please go ahead.
You mentioned 248 CNG stations out of that 175 are with all oil marketing companies, so can you broadly tell us that how much volume is done by through our stations in CNG and how much is done through OMCs and how much is done out of those 37 dealers and stations?
On an average the per capita throughput of OMC stations is lower than an MGL owned or MGL franchise station that is because OMC stations are collocated.
Broadly if you have a breakup like how many kg per day lakh kg per day at our stations and may be how many lakhs kg per day at an average at OMC stations?
Yes, it could be the split would be about 60-40, 60 from OMC, 40 from non OMC.
So, 60% of our total CNG volumes comes from OMCs and 40% comes from our stations?
Yes, roughly I mean this numbers can vary a bit depending on progress of new stations.
Sir, this 40% includes 37 dealer owned also like the franchise outlet around 37?
Yes, that includes those outlets they include MGL outlets, they also include outlets where you sale to STUs.
And they include the BEST outlet also?
Yes, and all those OMC, non OMC.
OMCs and non OMCs.
So then if we look at 248 stations then 37 are for how many we have with the BEST?
February 10,2020
Moderator · Conference Operator
Thank you.
Ladies and Gentlemen that was the last question I would now like to hand the conference over to management for closing comments.
Thank you.
On behalf of Axis Capital Limited that concludes this conference.
Thank you for joining us and 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
L40200IVIH1995PLC088133
Questions and answers
Mahanagar Gas Limited · February 10,2020
February 10,2020 compared to the previous quarter.
As a result, EBITDA for Q3 is Rs.
258.9 crore compared to previous quarter EBITDA of Rs.
273.4 crore.
Net profits after tax for Q3 is Rs.
186.1 crore compared to previous quarter figure of Rs.
270.6 crore.
Since reduction in opening deferred tax liability of Rs.
56.7 crore and impact of higher provision of tax in Q1 was adjusted in Q2 on account of lower tax rate of 25.17% as introduced by the taxation law amendment ordinance.
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 Nitin Tiwari from Antique Stock Broking.
Please go ahead.