MGL — earnings call
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Prepared remarks
Moderator · Conference Operator
MR. VIVEKANAND – AMBIT CAPITAL PRIVATE LIMITED Mahanagar Gas Limited June 11, 2020
Ladies and gentlemen, good day and welcome to the Mahanagar Gas Limited Q4 FY20 Post Results Conference Call hosted by Ambit Capital.
As a reminder, all participants’ 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. Vivekanand of Ambit Capital.
Thank you and over to you, sir.
Vivekanand
Good Evening everyone.
On behalf of Ambit Capital, I welcome all the participants to this conference call today.
We have with us the senior leadership team of Mahanagar Gas Limited.
Mr. Sanjib Datta - Managing Director; Mr. Deepak Sawant - Deputy Managing Director; Mr. S.
M.
Ranade – Chief Financial Officer and Mr. Rajesh Wagle – Senior Vice President (Marketing).
We will start with a brief overview of the company’s performance for Q4 FY20 and then we can switch over to our Q&A session.
But before we begin the proceedings, I hand it over to Jill for the disclaimer.
Thank you.
Management Representative
Thank you, Vivekanand.
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 a risks and uncertainties that may lead to different results.
The risks and uncertainties relating to the statement include, but are not limited to the risks and uncertainties regarding fluctuations in sales volumes, fluctuations in foreign exchange and other costs and our ability to manage growth.
I urge you to consider that the quarterly numbers are not a reflection of long-term trends or the indication of full year results.
This should not be attempted to be extrapolated or interpolated in future numbers.
Over to you, sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Vaibhav Goyal from SBI Life Insurance.
Please go ahead.
Vaibhav Goyal
Sir, primarily what I was trying to understand because there is the difficulty level which we feel in the shared mobility and for us the autorickshaw becomes one of the major chunk of contributor in the CNG volumes.
So you believe how things will normalize as per you and probably what can be done to mitigate this kind of effect or to provide better things there?
Moderator · Conference Operator
Thank you.
The next question is from the line of Anubhav Agarwal from Credit Suisse.
Please go ahead.
Anubhav Aggarwal
Sir, one question I just wanted to check on the CNG stations that we will be targeting or to add on this 256 this year.
Lot of them will be on the works where the progress may be stopped because of lockdown.
What is in the second half of this year or this full year how many stations do you think you can add to this 256 number?
Moderator · Conference Operator
Thank you.
The next question is from the line of Pritesh Chheda from Lucky Investment.
Please go ahead.
Pritesh Chheda
Just one question.
In this 73% contribution from CNG, what would be the shared mobility as a percentage there and where we can include the buses, autos and the four-wheelers which are on the shared basis, what proportion of this 73% should be these three, four areas?
Moderator · Conference Operator
Thank you.
The next question is from the line of Nitin Tiwari from Antique Stock Broking.
Please go ahead.
Nitin Tiwari: · And sir, lastly, like in terms of off take of domestic gas in this quarter so far we have seen
So first one is a book keeping one.
If you can give me a breakup of commercial and industrial volume how much is that for the quarter?
Yes, industrial and commercial.
Moderator · Conference Operator
The line for the current participant dropped, so we move to the next question, which is from the line of Rohit Ahuja from BOB Capital Markets.
Please go ahead.
Rohit Ahuja
Can you tell me what is the CAPEX for FY’20?
Moderator · Conference Operator
Thank you.
The next question is from the line of Manikantha Garre from Axis Capital.
Please go ahead.
Manikantha Garre
Sir, just to continue with the earlier line of question on margins.
I am just wondering how are the discussions with the industrial customers post easing of the lockdown?
Was there any request from them to reduce their pricing given the weak spot in their prices or at least in the near term would there be any change in strategy for you in terms of pricing for them given the financial hit they would have taken during this time?
That is my first question.
Moderator · Conference Operator
Thank you.
The next question is from the line of Janish Shah from Quantum Advisors.
Please go ahead Mahanagar Gas Limited June 11, 2020
Janish Shah
I have a question on your licensing basically the Mumbai MMR region license is getting due for renewal.
Can you just share what is the progress on that?
I think it got expired somewhere in March or April.
So if you can just give an update on that?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vikas Jain from CLSA.
Please go ahead.
Mahanagar Gas Limited June 11, 2020
Vikash Jain
I just wanted to understand what just Janish was asking anyways was so this 42% of overall volumes you think is where you are operating, 42% of pre Covid level, for all kinds of customers put together.
Is that what you mean by that statement?
Moderator · Conference Operator
The next question is from the line of S.
Ramesh from Nirmal Bang.
Please go ahead, sir.
S. Ramesh
The first thought is dwelling on the low volumes.
If you were to see 60%, 70% volumes how does it impact your costing in terms of the relative to absorb the fixed costs so just to understand how the numbers will move this year?
Out of your say other expenses because Mahanagar Gas Limited June 11, 2020 employee cost will not change so what proportion of the other expenses remains fixed irrespective of the volumes?
Moderator · Conference Operator
Thank you.
The next question is from the line of Sabri Hazarika from Emkay Global.
Please go ahead.
Sabri Hazarika
I have a few housekeeping questions.
First, what was the commercial and industrial price for Q4 and what is it currently?
Moderator · Conference Operator
Thank you. the next question is from the line of Jeet Gala from Centrum Advisors.
Please go ahead.
Jeet Gala
I wanted to know what is the sourcing of your gas I mean where is it coming from?
How much it is coming from APM, non-APM and how much is the imported LNG?
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, just wanted to understand how much gas would be flowing from Raigad now?
I am just saying before the COVID impact?
Mahanagar Gas Limited June 11, 2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Yogesh Patil from Reliance Securities.
Please go ahead.
Yogesh Patil
My first question is related to Mahanagar Gas contract negotiations with the private CNG pump owners.
Sir, in last month news flow we read that gas supplies has been stopped to 4 to 5 CNG stations.
So, any update on that side, sir?
Moderator · Conference Operator
Thank you.
The next question is from the line of Lokesh Manik from Vallum Capital.
Please go ahead.
Lokesh Manik
My question was mainly on the upcoming gas exchange that we are hearing about.
Just wanted to understand the benefits it could offer us in terms of sourcing requirements.
Do you see that it can lead to better price discovery than what we have right now in the international markets?
Moderator · Conference Operator
Thank you.
The next question is from the line of Siddharth Rajpurohit from JHP Securities.
Please go ahead.
Mahanagar Gas Limited June 11, 2020
Siddharth Rajpurohit
Sir, can you please give me the breakup of prices for APM, non-APM and PMT and spot?
Moderator · Conference Operator
Thank you.
The next question is from the line of Soumaya V from Spark Capital.
Please go ahead.
Somaiah V
Sir, my question is on the margins.
Your Q4 margins on the gross margins if I look at your per unit number it has increased substantially.
So I mean is it a right read that the industrial has been the key driver for this because I see as per the numbers commercial and industrial realizations I see that it is probably grown up Rs.
3 per SCM on a quarter-on-quarter basis?
Is this probably driving big chunk of the gross margin improvement sequentially?
Moderator · Conference Operator
Thank you.
The next question is from the line of Rakesh Sethia from HDFC Mutual Fund.
Please go ahead.
Rakesh Sethia
The question is on the regulations.
You just mentioned that your infrastructure exclusivity has expired.
But does the current regulation provide any headroom for you to get an extension in the infrastructure exclusivity or is that a grey area?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vidyadhar Ginde from ICICI Securities.
Please go ahead.
Vidyadhar Ginde
Just wanted to confirm or get your thoughts on.
So based on the discussion I think this has been discussed in your earlier questions also.
But how do you see the margins for this year because it was also asked what is the volumes, fixed cost, how it you will playout you have Mahanagar Gas Limited June 11, 2020 some lever in terms of price hikes potentially going forward but assuming that spot LNG prices let us say stay where they are, oil prices stay where they are, also LPG price, fuel oil price everything stays what it is now.
So do you see margins this year to be similar to last year, higher, lower how do you see that?
Moderator · Conference Operator
Thank you.
The next question is from the line of Nitin Tiwari from Antique Stock Broking.
Please go ahead.
Nitin Tiwari: · And sir, lastly, like in terms of off take of domestic gas in this quarter so far we have seen
Again sir, I am sorry I dropped out when I was asking.
So second question basically, is related to the network expansion.
So at what basically level of saturation do we stand and like as you mentioned that you will be spending close to Rs.
400 crores to Rs.
500 crores every year on a recurring basis.
So what level of network actually we see is the threshold level at which the saturation would have been like sort of achieved and what is the timeframe for that?
So, one question is that sir.
But sir, there will be a threshold level, right, so we are adding CNG stations at the rate of about 20, 25 every year.
So what is the number of stations at which like we would be like targeting most of the geographical spread and like vehicle population where incremental station additions would not be required?
So you would have some estimate of that number.
That is what I was trying to ask and of course like on the pipeline to domestic household front I believe we are at about 35%, right?
That was the number I remember from one of our last conversations.
And my next question is around PNGRB guideline which has come around setting up of LNG stations.
So do you think that could be sort of basically a concern for us or like we would also want to get into LNG dispensation business?
In terms of logistics as far as LNG is concerned so the transportation from an LNG receiving terminal to the consuming areas would mostly by trucks I suppose.
So would that still make it economical versus say a CNG or diesel?
And sir, lastly, like in terms of off take of domestic gas in this quarter so far we have seen lower sales in terms of the allocation that we have of domestic gas.
So what is happening with respect to our off take obligation?
So are there any liabilities which are coming up on us or is there like flexibility for us to defer that off take.
So how is that working on?
Have you basically declared a sort of a force majeure over yet?
Why I asked because actually force majeure also requires a complete closure of business as such I mean in terms of legality there should not be any business conducted or it should not be in a position to conduct business.
But some sales have happened, right.
So around 25% was what you were selling in April.
So would that be an issue or like it is broadly we are okay as far as legality is concerned?
Moderator · Conference Operator
Thank you.
The last question is from the line of Ashutosh Chaubey from Centra Advisors LLP.
Please go ahead.
Ashutosh Chaubey: · My question is with regards to your CNG business. Could you help me understand, what is the
My question is with regards to your CNG business.
Could you help me understand, what is the average amount of investment that is required to set up a CNG station?
Also what is the volume of business done per year the revenues that are generated from CNG station and the profit that are generated from per CNG station?
Sir, the second question that I have is could you help us understand how is the APM gas allocation done by the government?
Okay so as we know out of the total India domestically produces around 70 MMSCMD of domestic gas.
How much of this is allocated towards APM?
Could give us a number?
I have one last question that is APM gas only goes towards the CNG and domestic PNG, is that correct?
Is there any other priority sector for that allocation is done through?
Moderator · Conference Operator
Thank you.
I now hand the conference over to the management for closing comments.
Thank you.
On behalf of Ambit Capital, that concludes this conference.
Thank you for joining us and you may now disconnect your lines.
Mahanagar Gas Limited June 11, 2020
[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
System · Call Header
Thank you and good afternoon to all of you and welcome to the earnings conference call of Mahanagar Gas Limited for the fourth quarter of the Financial Year 2019-20.
I would like to thank all of you who have connected for our earnings call today.
As you are aware in March 2020 the World Health Organization characterized the outbreak of a strain of the new Coronavirus COVID-19 as a pandemic.
This outbreak is causing significant disturbances and slowdown of economic activities.
Due to the nationwide lockdown announced by the Government of India since last week of March 2020 to combat COVID-19, the company’s operations have been impacted resulting in reduction of sales volumes except for gas consumed in household kitchens.
Mahanagar Gas Limited June 11, 2020 During the lockdown, the company has been able to receive gas supplies and has also maintained the supply of gas to all types of consumers as per their requirement.
Considering continuation of gas supplies during lockdown volumes recorded and now with partial easing of lockdown it is estimated that sales volumes are likely to pick up gradually due to increased vehicular movements, opening up of restaurants, commercial establishments, industries and other businesses that are using gas.
Daily sales volume have increased from 25% in April 2020 to 42% in June 2020.
Compared to normal volumes recorded in pre-lockdown periods.
With around 73% of normal volumes coming from CNG we expect MGL is better placed to bounce back fairly quickly post easing of lockdown.
Commercial sales volume may improve more gradually.
The impact of COVID-19 on our operations may turn out to be different as compared to the estimates drawn up as of today.
But the company will continue to closely monitor future changes.
Considering the possibility of prolonged disturbances and in order to safeguard lives of our human resources we have enabled IT arrangements to work from home particularly for service functions like finance, HR, Procurement, Engineering and Planning, CRM etcetera.
For functions like Projects, O&M, Marketing where work on the field is necessary observation of the prescribed safe practices are being ensured.
MGL today is a strong incumbent in the CGD sector with significant strength and core capabilities.
MGL being a debt free company in spite of likely adverse impact on our earnings in the current financial year, growth of infrastructure will not be hampered due to want of funds.
However, remobilization of contractors, migrant labor, permissions from housing societies as well as from other authorities could pose some challenge.
We are rapidly expanding our CGD network in the existing license areas.
During the recently concluded quarter 32,582 domestic households were added.
Today we have more than 1.26 million household customers who are being supplied with piped gas.
We had a net addition of 24 industrial and commercial consumers this quarter.
And as on quarter end, we had 4,021 industrial and commercial customers.
Besides as on quarter end we had 256 stations supplying CNG to around 7.51 lakhs vehicles and our aggregate of steel and PE pipeline network stood at 5,630 kilometers.
With respect to our Raigad GA we added more than 4,200 domestic PNG connections in this quarter and to fulfill the minimum work program targets for providing domestic PNG connections.
Fourteen CNG stations are currently operational in Raigad and average CNG sales in Raigad had reached 38,000 Kgs per day in pre-lockdown period.
As a result of lockdown during quarter 4 we lost sales volumes in March 2020 resulting in reduction in overall sales volumes Mahanagar Gas Limited June 11, 2020 for the quarter by 8.77% compared to previous quarter.
As a result current quarter’s EBITDA is Rs.
244 crores as compared to previous quarter’s EBITDA of Rs.
259 crores.
On the margin front, EBITDA was 35.5% for Q4 and marginally higher compared to previous quarter’s EBITDA of 34.8%.
Net profit after tax was Rs.
167 crores in the quarter as compared to Rs.
186 crores in the previous quarter.
For the full year 2019-20 overall sales volume had a marginal increase of 0.05% on year-on-year basis.
However, for the year 2019-20 EBITDA increased to Rs.
1,053 crores from previous year’s EBITDA of Rs.
885 crores.
Main driver for this EBITDA growth was improved gross margin on account of lower spot gas prices during the year compared to previous year.
Coupled with improved gross margin and reduction in corporate tax rates profit after tax has increased to Rs.
793.5 crores in financial year 2019-20 from Rs.
546.39 crores in previous financial year registering a growth of 45%.
The board of directors have declared a final dividend of 255% subject to approval of shareholders at the forthcoming annual general meeting.
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 with the question-and-answer session.
The first question is from the line of Vidyadhar Bhinde from ICICI Securities.
Please go ahead.
Vidyadhar Ginde
A couple of questions.
First, if you could give us some idea on how you expect the ramp up of volumes and when do you think you might get back to normal volumes during the year?
And the second question is on the regulatory side there were some steps being taken by the regulator on allowing competition.
What is the progress on that, what is the latest on that if you could share with us, thanks?