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

Ladies and gentlemen, good day and welcome to the Mahanagar Gas Limited Q1 FY2021

Nilesh Shah: · Sir, can you just give us a brief breakup of this 550 Crores – 600 Crores if everything goes

Given the lower demand this year, is it not possible to defer the capex?

Sir, can you just give us a brief breakup of this 550 Crores – 600 Crores if everything goes

As in where would this be spent?

Mahanagar Gas Limited August 10, 2020

Alright and what has been your capacity utilization for FY 2020?

FY 2020.

Sir, FY2020 last financial year

No, I am asking capacity utilization?

Yes Sir both CNG and PNG.

Okay, again I might be overstressing this but, in a downturn, do you think this is a right move to spend 550 Crores to 600 Crores on capex?

Okay.

Moderator · Conference Operator

Thank you.

Next question we will take from Vidyadhar Ginde from ICICI Securities.

Please go ahead.

Mahanagar Gas Limited August 10, 2020

Vidyadhar Ginde

My question was in last earnings call you had suggested that you had several levers to maintain margins but margins are down quite significantly in Q1, but now volumes have been significantly recovered from lows of April, do you now expect margins to improve significantly going forward or going back closer to the kind margins you were making last year?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Jigar Shah from May Bank.

Please go ahead.

Jigar Shah

Good evening Sir, my question is one that we are hearing some changes in the APM gas price mechanism whether it is true, if you are able to provide any color then I will ask another question?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Probal Sen from Centrum Broking.

Please go ahead.

Probal Sen

Thank you for the opportunity Sir, I had two questions.

One of what is the number of CNG stations in total that you are operating today and of that what percentage today is been operated out of OMCs and what sort of commission are we paying them if it is possible to share as of now?

Moderator · Conference Operator

Thank you.

We will take our next question from the line of Amit Rustagi from UBS Global.

Please go ahead.

Amit Rustagi

Good evening, thanks for taking my question.

My question pertains to the regulation itself, do we get an opportunity to present before the government, because government on one hand wants infrastructure development on the CGDs and on the other hand if this regulation comes so how are they going to strike the balance, so if you have any thoughts here if you can add something?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Lokesh Manik from Vallum Capital.

Please go ahead.

Lokesh Manik

Good afternoon Sir.

Just couple of questions one is the clarification, you mentioned that CNG stations are operating at 50% capacity in FY2020 these would include both owned and OMC’s that is total 266?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Sujit Lodha from Birla Sun Life Insurance.

Please go ahead.

Sujit Lodha

Thanks for taking my question.

My first question will be Sir, is there any discount which we offer to BEST or is it at market price?

Mahanagar Gas Limited August 10, 2020

Moderator · Conference Operator

Thank you.

We will take the next question is from the line of Manikantha Garre from Axis Capital.

Please go ahead.

Manikantha Garre

Thanks for giving the opportunity.

Sir, I wanted to check from you if you have any insights that you get, or you are getting from discussions with OEM’s on the CNG vehicles especially from the LCV or MCV side.

I am asking this because I hear that in Delhi for example, Tata Motors and Eicher are talking about more than 20% growth in LCV segment.

So, are you hearing or are you seeing such kind of growth in Mumbai also, that is my first question?

Moderator · Conference Operator

Thank you.

Our next question is from the line of S.

Ramesh from Nirmal Bang.

Please go ahead.

S. Ramesh

Good evening and thank you very much.

The first part is in terms of your gas sourcing, how much of your gas is on spot and how much on contract?

Moderator · Conference Operator

Thank you.

We will take our next question from the line of Nitin Tiwari from Antique Stock.

Please go ahead.

Nitin Tiwari

Good evening Sir, thanks for taking my question.

I hope you all are doing well.

Sir, my first question is related to the outlets that we have with oil marketing companies, so what is the contractual I mean making your terms or obligations, if you might elaborate a little bit on that the oil marketing company in terms of operating those stations and what is the duration and whether it is possible like in the light of third party access that oil marketing companies might want to operate it themselves.

So, if you can help us understand that a little bit then I will ask my second question?

Mahanagar Gas Limited August 10, 2020

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Reena Shah

Thank you for the opportunity.

Sir, I wanted to know gas source proportion from domestic and imports?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Subecha Jain from AMS Wealth.

Please go ahead.

Subecha Jain

Hi Sir.

Couple of questions, just wanted a sense about how is the labor situation like you said you have lot of contractual labor working for you, if you can throw some light on the labor situation?

Moderator · Conference Operator

Thank you.

Our next question is from the line of Anubhav Aggarwal from Credit Suisse.

Please go ahead.

Anubhav Aggarwal

Good evening.

One question is on the infrastructure particularly for the Mumbai region, you had mentioned in the presentation last time that in 2020 I want to understand one update on this, second who is the body who will grant further extension of this, will it be PNGRB or some other body?

Moderator · Conference Operator

Thank you.

We will take the next question from the line of Ashutosh Chaubey from Centra Advisors LLP.

Please go ahead.

according to plan? · Management:

Thank you for the opportunity.

Sir, I wanted to ask that as likely you said that there has been word going around in multiple newspapers saying that the PNGRB regulations might come in probably by end of this month, so with respect to your capex planning don’t you think that we should rather delay this or defer this capex planning until and unless we get a clear view if it does come by end of this month?

Okay Sir.

Thank you.

Moderator · Conference Operator

Thank you.

We will take the next question from the line of Phalguni Dutta from Jet Age Securities Private Limited.

Please go ahead.

Phalguni Dutta

Good evening.

Sir, I just had one basic question which is our CNG pricing is done with respect to petrol and diesel prices and it is done freely keeping in mind those prices?

Moderator · Conference Operator

Thank you.

The next question is from the line of Abhilasha Satale from Dalal and Broacha.

Please go ahead.

Abhilasha Satale

Thank you for taking my question.

Sir, I have question on the gross margin, you said our gross margins have improved during the quarter so seeing the current gas price trend, how do we see our gross margins going forward.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Abhijeet Bora from Sharekhan.

Please go ahead.

Abhijeet Bora

Sir, we have increased the CNG prices by Re.1 per kg recently and now our volumes are back to 50% so can you just guide us that with these two things what proportion of our fixed cost is being covered like how much percentage like there was a higher per unit opex was, at what levels we are currently?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question.

I now hand the floor back to Mr. Gagan Dixit for closing comments.

Over to you Sir.

Gagan Dixit

Thank you for all the participants and special thanks to the Mahanagar Gas Management for sharing their views on the complete first quarter fiscal year 20-21.

We take this opportunity to thank Mr. Datta and his team once again.

You can disconnect this call now.

Thank you, Sir.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, on behalf of Elara Securities Private Limited that concludes this conference.

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

Questions and answers

System · Call Header

Thank you.

Good afternoon to all of you and welcome to the earnings conference call of Mahanagar Gas Limited for the first quarter of the financial year 2020-2021.

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 the strain of the novel corona virus, COVID-19 as a pandemic.

This outbreak is causing significant disturbances and slow down of economic activity across the globe.

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 for the full quarter resulting in reduction of sales volume except for gas consumed in household Mahanagar Gas Limited August 10, 2020 kitchens.

However, during the lockdown, the company received its gas supplies and maintained the supply of gas to all types of customers as per their requirement.

Now with partial easing of lockdown, daily sales volume had increased from 25% in April 2020 to 55% in July 2020 compared to normal volumes recorded in pre-lockdown period.

Sales volume has further improved to around 65% level in the month of August.

It is estimated that sales volumes are likely to pick up further due to increased vehicular movement, opening up of restaurants, commercial establishments, industries and other businesses that use gas.

As the cases of COVID-19 are still rising, and the annunciation of responses to it by the statutory authorities may also get modulated from time to time, impact on our operations may turn out to be different as compared to estimates drawn as of today, but the company will continue to closely monitor future changes.

In early June 2020, the state government launched mission Begin Again with some easing of restrictions though a host of restrictions of the lockdown currently stands extended till 31st August 2020.

Continued restrictions resulting in limited attendance in Government and private offices is having adverse impact on securing and revalidating required permissions for pipeline laying work.

Lockdown restrictions also have resulted in adverse impact on availability of contract manpower much of which had migrated to their native places and are reluctant to come back due to frequent lockdowns.

Many societies are also not allowing access to MGL’s staff to undertake construction work.

In July 2020, there was re- imposition of strict lockdown in municipal areas of Mira-Bhayander, Thane, Navi Mumbai, Kalyan-Dombivali, Panvel and Raigad which impeded construction work.

As Mumbai Metropolitan region is one of the most affected areas due to COVID-19 outbreak, continuation of partial lockdown or re-imposition of complete lockdown in parts cannot be ruled out.

Considering the possibility of prolonged disturbances and in order to safeguard our human resources, we have enabled IT arrangements to work from home, particularly for service functions like finance, HR, procurement, engineering and planning, CRM etc. For functions like projects O&M, marketing etc., where work on the field is necessary, observation of the prescribed safe practices are being ensured.

Gas supply to PNG consumers and all our open CNG stations have been maintained 24/7 during the lockdown.

Our emergency control room and customer care services have remained operational adhering to required safety and social distancing guidelines providing 100% customers support and meeting the emergency needs.

As a responsible corporate citizen, we have continued to pay all our dedicated contractual manpower, the minimum wages applicable during the period of lockdown.

We have also funded various social initiatives under CSR projects for people impacted due to COVID-19 and prolonged lockdown.

Mahanagar Gas Limited August 10, 2020 As a result of lockdown throughout the quarter, volumes were adversely impacted resulting in reduction in overall sales volume for the quarter by 60% compared to previous quarter.

As a result, current quarter EBITDA is Rs.80 Crores as compared to previous quarter EBITDA of Rs.244 Crores.

On the margin front, EBITDA was 30.6% for Q1 compared to previous quarter EBITDA of 35.5%, expenses per SCM of gas sold are high mainly due to overheads remaining at normal levels with reduced volumes.

Net profit after tax was Rs.45 Crores in the quarter as compared to Rs.167 Crores in the previous 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 Sir.

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

Nilesh Shah: · Sir, can you just give us a brief breakup of this 550 Crores – 600 Crores if everything goes

Good evening, Nilesh Shah this side, my first question is what is the capex target for this year?