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
SANJIB · DATTA
DATTA –
MANAGING · DIRECTOR,
DIRECTOR,
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
MR.
DEEPAK · SAWANT
SAWANT –
DIRECTOR, MAHANAGAR GAS LIMITED · MR. S.M. RANADE- CHIEF FINANCIAL OFFICER,
MR. S.M.
RANADE- CHIEF FINANCIAL OFFICER,
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
Moderator · Conference Operator
MR. MANIKANTHA GARRE – AXIS CAPITAL LIMITED
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
November 17, 2020 been easing of lockdown restrictions, even today, presence in our office establishments is to the extent of 30%.
Issues with regard to restricted work environment and compliance requirements in respect of pandemic continue.
As a responsible corporate citizen, we have continued to pay all our dedicated contractual manpower, the minimum wages applicable during this period of lockdown.
This has enabled better productivity from all service providers.
We have also provided monetary incentives to bring back migrant contract labor.
Though reasonable number of contract laborers are available, mobility within the city is constrained as local trains are not fully operational.
Besides, access to societies and prompt grant of permissions by statutory authorities still remain a practical constraint.
Gas supplies to all our PNG customers and to the CNG stations have remained operational 24x7 during the lockdown.
Our emergency control room and customer services have also remained operational for meeting all emergency needs and for ensuring 100% customer support while adhering to the required safety and social distancing guidelines.
We also continue to fund various social initiatives under CSR project for people impacted due to COVID-19 and the prolonged lockdown.
Now, coming to MGL’S operation, we are rapidly expanding our CGD network in the existing licensed areas.
During the quarter, 16,223 domestic households were connected, thus we have established connectivity for nearly 1.5 million households.
We have laid 18.52 Kms of steel and PE pipelines, thereby taking the aggregated pipeline lengths to more than 5,650 Kms.
We have added three new CNG stations and with these we have 259 CNG stations.
We also added 28 industrial and commercial consumers and thus as on quarter end we have 4,046 industrial and commercial customers.
With respect to our Raigad geographical area or GA, we are connected to more than 26,500 domestic households and 15 CNG stations are operational.
CNG sales in Raigad reached the average level of 30,900 Kg per day in the month of September 2020 in spite of movement restrictions.
It is expected to go up when some more CNG stations become operational in coming months.
In Raigad GA, we have laid 7.82 Kms of pipeline during the quarter thereby taking the total length of pipeline in Raigad to 109.82 Kms.
Despite the impact of COVID-19, during the quarter, we achieved overall sales volume of 2.073 mmscmd consisting of CNG volume of 1.276 mmscmd, domestic volume of 0.463 mmscmd and 0.334 mmscmd supplied to the industry and commercial segments.
Significant volume recovery trend is seen with an increase of 86% in overall sales volume compared to previous quarter.
November 17, 2020 In case of CNG, sales volume has reached from 0.48 mmscmd to 1.276 mmscmd, which is an increase of 166%.
In case of domestic sales, volume has increased from 0.429 mmscmd to 0.463 mmscmd, which is an increase of 8%, while in case of industry and commercial segments, sales volume has increased from 0.204 mmscmd to 0.334 mmscmd, an increase of 64% compared to the previous quarter.
As a result, current quarter EBITDA is Rs.221 crores, which is 176% higher as compared to previous quarter EBITDA of Rs.80 crores.
A new high is reached on the margin front with EBITDA being at 43.6% for Q2 compared to previous quarter EBITDA of 30.6%.
Net profit after tax has been Rs.144 crores in the quarter as compared to Rs.45 crores in the previous quarter, representing a 220% increase.
Now, let us look at some recent developments and implications thereon.
Firstly, the company had requested PNGRB to extend the timeline for achieving the Minimum Work Program or MWP in respect of inch kilometer on account of slowdown due to COVID-19.
PNGRB has issued public notice dated November 5, 2020 extending the MWP timeline due to COVID-19 lockdown for various geographical areas, and extension of 251-days for Raigad GA has been granted.
The extension will surely help MGL to meet its inch kilometer target.
Secondly, PNGRB has also notified Petroleum and Natural Gas Regulatory Board guiding principles for city or local gas distribution network as common carrier or contract carrier regulation 2020 wide notification dated September 30, 2020.
Access code and tariff regulations await notification.
However, we believe that many clarities will have to emerge before these principles and regulations are finally implemented on the ground.
Thirdly, the oil marketing companies of OMCs have raised the demand for a steep hike in trade discount while selling CNG from their retail outlets.
We hope to settle the matter through negotiation and involvement of other stakeholders.
In Raigad GA, we have recently received permission to lay pipeline of 8.5 Kms from PWD at Rasayani to Panvel, further permissions to lay 23 Kms of pipeline on NH-166D, that is Khopoli Main Road and 5.5 Kms on NH-17 that is Goa road from Palaspe Phata to Aswad petroleum are in process.
We have procured land for setting up a City Gate Station or CGS for receiving gas from GAIL’s pipeline at Savroli in Raigad GA and are likely to complete the CGS connectivity in a year’s time from now.
MGL seems to be at a takeoff point for rapid progress in next three to four quarters in view of new highs in margins, sales volume reaching 3 mmscmd in November, and infrastructure getting ready in Raigad to tap industrial load.
The factors like spot gas prices, Brent level and rupee/dollar exchange rate remain favorable, we can look forward to steady or even improved EBITDA margin per unit.
November 17, 2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Nafeesa Gupta from BOA Securities.
Please go ahead.
Nafeesa Gupta
In the quarter we see that the CNG price realization was kind of flattish sequentially QoQ basis, but even though we took a price hike of Re.1 in the quarter in July, so, just wanted to know how…?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Chinmay Gandre from Bharti AXA Life.
Please go ahead.
Chinmay Gandre
With respect to OMC trade margins, currently how many rupees per Kg are we paying right now to them?
Moderator · Conference Operator
Thank you.
The next question is from the line of Vishnu Kumar from Spark Capital.
Please go ahead.
Vishnu Kumar
Sir, in your opening remarks, you mentioned that if certain parameters play out, you will increase on the current margins that you had kind of reported this quarter.
We understand LNG prices, currency.
Just wanted to understand the broad trajectory of margins which we will continue to
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020 maintain over the next couple of years, so will we breach the Rs.10 range going forward if you could give us some idea and guidance on that, if not a guidance, at least color on how we should see this?
November 17, 2020
Moderator · Conference Operator
Thank you.
The next question is from the line of the Bhavin Gandhi from B&K Securities.
Please go ahead.
Bhavin Gandhi
Just wanted the exact quantum of volumes that we are doing from OMC outlets today, I mean, on a steady state basis, if you can give us the last year number?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
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 some clarification in future if and when there is competition when it comes in and let us say the OMCs are the competitor, so, as per your current arrangement with them, is there anything which prevented them from just putting their own CNG dispenser in a CNG station where they have your dispenser currently?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
November 17, 2020
Vidyadhar Ginde
That was not the case for IGL.
It was different for different people.
That was again one of the changes which happened at that time.
So, you are lucky to get entirely domestic gas.
Even the IGL, I am fairly certain in FY’14 before this change came in, had to use some LNG even for supply to the domestic consumers.
Where I am coming from is that the margin which we are doing right now is great.
But I think if regulator comes out with competition, allows and then you take it to court, which you probably will, I think the way you are trying to ramp up your margin, it might work against you in court.
Don’t you think that is something that you should consider?
Moderator · Conference Operator
Thank you.
The next question is from the line of Sabria Hazarika from Emkay Global.
Please go ahead.
Sabri Hazarika
I have two questions; first one is relating to Raigad.
So, currently, you mentioned that around 30,000, 40,000 Kgs of CNG you are selling, but what is the total volume comprising both CNG in industrial, commercial and domestic PNG in Raigadcurrently?
And what is the total potential in the next say five years in Raigad?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020 would be looking at 0.5 to 0.6 mmscmd kind of a volume ramp up, predominantly happening in CNG and industries.
Sabri Hazarika
So, in five years, you are expecting a 10x kind of a volume growth from Raigad?
Moderator · Conference Operator
Thank you.
The next question is from the line of S Ramesh from Nirmal Bang.
Please go ahead.
S Ramesh
First of all, if you look at the second half, if you see the spot gas prices have gone up and you have already taken a price reduction I understand after the October, domestic cycles were announced for the APM gas, so, assuming that your CNG volumes are pretty stable, is there a risk of the industrial and commercial segment margin dipping because especially the oil prices fall, because there is an increase in your input cost based on the spot LNG prices?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020 let us see how the things will unfold.
And third element will be suppose rupee/dollar exchange rate, though you did not talk about it, suppose that turns favorable, there are some signs of similar nature, then even that can also help us to say maintain the margin or even improve margin.
S Ramesh
The next thought is if you look at the outlook for volumes in say FY’22, can we assume that somewhere near FY’20 level we come out of this COVID and you have this 90% 95% equivalent of normal volume, from 21-days difficult to estimate that, so would a CNG volume run rate of around 2.2 and close to 1 million of PNG, something to go by say FY’22?
Moderator · Conference Operator
Thank you.
The next question is from the line of Yogesh Patil from Reliance Securities.
Please go ahead.
Yogesh Patil
So basically, if you could throw some light on CNG vehicle conversion or addition rate currently, and how do you see it would be in the future subject to start of two metro lines in Mumbai geographical areas?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
Moderator · Conference Operator
Thank you.
The next question is from the line of Rohit Ahuja from BOB Capital.
Please go ahead.
Rohit Ahuja
Sir, two questions from my side.
On your commercial and industrial segment volumes, you said your margins were in the range of Rs.28 to Rs.32 per SCM, and given that you consume LNG volumes over there, recent spike in LNG prices to about $6 per mmbtu.
Would it impact the margins in the second half of this year for these segments?
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
Rohit Ahuja
Given the way LNG prices have risen for the last two months, how would be in Q3 and Q4, do you see a decline from first half?
Moderator · Conference Operator
Thank you.
The next question is from the line of Abhilasha Satale from Dalal & Broacha.
Please go ahead.
Abhilasha Satale
You guided for FY’21 and ‘22 volume growth, but seeing the overall infrastructure base and the kind of penetration level we have already reached, how do we see CNG and commercial volume
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020 base after ‘22 on a sustainable basis like what will drive our volume growth apart from Raigad in the current region and a new region if you could just give some sort of guidance for the longer term?
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, due to time constraints, that was the last question for today.
I would now like to hand the conference over to the management for closing comments.
MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE, SVP, MARKETING, MAHANAGAR
November 17, 2020
Moderator · Conference Operator
Thank you.
On behalf of Axis Capital Limited, that concludes this conference.
Thank you for joining us, and you may now disconnect your lines.
Contact details
Investor Relations:
[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, SVP, MARKETING, MAHANAGAR
November 17, 2020 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 Amit Rustagi from UBS Securities.
Please go ahead.
Amit Rustagi
I have two questions; first question relates to the volume recovery in the third quarter.
So, could you help us in understanding how has been the volume in the month of October and November and which segments are doing well or which segments are still lagging behind?