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.

SANJAY · SHENDE

SHENDE –

DEPUTY · MANAGING

MANAGING DIRECTOR – MAHANAGAR GAS LIMITED MR. RAJESH PATEL – CHIEF FINANCIAL OFFICER –

MAHANAGAR GAS LIMITED · MR. RAJESH WAGLE - SENIOR VICE PRESIDENT,

MR. RAJESH WAGLE - SENIOR VICE PRESIDENT, MARKETING – MAHANAGAR GAS LIMITED Mahanagar Gas May 11, 2022

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to Mahanagar Gas Q4 FY2022 earnings Conference Call hosted by YES Securities Limited.

As a reminder, all participant 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. Nitin Tiwari from YES Securities.

Thank you and over to you Sir!

Nitin Tiwari

Thank you Aman.

Good evening everyone.

I welcome everyone to Mahanagar Gas Limited’s fourth quarter end FY2022 earnings call.

We have the pleasure of having with us today the senior management team from Mahanagar Gas Limited represented by Mr. Sanjib Datta, Managing Director, Mr. Sanjay Shende, Deputy Managing Director, Mr. Rajesh Patel, Chief Financial Officer and Mr. Rajesh Wagle - Senior Vice President, Marketing.

I will now hand over the floor to the management for their opening remarks and that shall be followed by an interactive Q&A session.

Over to you Sir!

Moderator · Conference Operator

Thank you.

We have the next from the line of Aishwarya Agarwal from Nippon India AMMF.

Please go ahead.

Aishwarya Agarwal

Thank you.

Have we taken enough price hikes for the CNG so that our margin reaches to Rs.

10 per SCM?

Moderator · Conference Operator

Thank you.

The next question is from the line of Vikas Jain from CLSA.

Please go ahead.

Vikas Jain

Thanks for taking my question.

So on the contracts that you mentioned here you mentioned three of them one is with GSPC, the other is with I think the US LNG contract and thirdly is the new gas contract or the deepwater so all of those three what is the tenure of these contracts.

These are like five year contracts.

How long are these contracts?

Moderator · Conference Operator

Thank you.

The next question is from the line of Sabri Hazarika from Emkay Global.

Please go ahead.

Mahanagar Gas May 11, 2022

Sabri Hazarika

Good afternoon Sir, so I have two questions.

The first one is related to this domestic gas guideline only.

Wanted to know if you are getting the allocation from 16 May for this quarter then it would be the total priority sector volumes of last quarter which will be considered right.

Which is both APM plus the amount of LNG or will it be just APM?

Moderator · Conference Operator

Thank you.

The next question is from the line of S.

Ramesh from Nirmal Bang.

Please go ahead.

Mahanagar Gas May 11, 2022

S. Ramesh

Good evening and thank you very much.

So with reference to the new gas allocation scene to be managed by GAIL, now in terms of your ability to respond to change in your overall blended cost of gas how will it change in terms of the leader lag because so far you were controlling your gas procurement and the blended cost of gas, how do you see this impacting the way you change prices every month or every quarter particularly for the industry and commercial segment where you review every month and for CNG and the domestic PNG prices happen when you change in cost of gas?

How do you see this play out?

Moderator · Conference Operator

Thank you.

The next question is from the line of Maulik from Equirus.

Please go ahead.

Maulik

Thanks for the opportunity.

Sir one question; CNG volume took a relatively larger dip in this quarter on q-o-q basis.

Was there an impact of the MSRTC strike which was happening in Maharashtra since November 2021?

Moderator · Conference Operator

Thank you.

The next question is from the line of Iqbal Khan from Edelweiss.

Please go ahead.

Iqbal Khan

Breakup of Industrial and commercial customers.

Second question in the last quarter you had mentioned that it was around 2200 CNG buses, 800 diesel and 200 EVs so you could you please give us the current break up?

Moderator · Conference Operator

Thank you.

The next question is from the line of Varadharajan Siva Krishnan from Antique Limited.

Please go ahead.

Varadharajan Siva K

Thank you.

Thanks for the opportunity Sir.

I just want the clarity on this 5% CNG volume drop.

On a q-o-q basis CNG volumes are down 5% so what growth has declined?

Moderator · Conference Operator

Thank you.

The next question is from the line of Niharika Jain from Equitas Investment Consultancy.

Please go ahead.

Niharika Jain

In the current quarter the total domestic sales is 2.75 MMSCMD which is CNG and PNG domestic and already in the last quarter we had told we have 0.15 MMSCMD of 18 months of LNG contract and some 0.1 MMSCMD.

So how much of quarter four quantity did we get from contract and how much did we procure from spot.

Moderator · Conference Operator

Our next question is from the line of Harsh Bohra from VT Capital.

Please go ahead.

Harsh Bohra

Sir my question was regarding the mobile refueling unit so is there only one MRU or have we added more during the quarter?

Moderator · Conference Operator

Thank you.

The next question is from the line of Mukesh Mani from Vallum Capital.

Please go ahead.

Mukesh Mani

Sir just one question from my side.

The commissions that we are paying to OMC are they on margin basis or are they on fixed cost per SCM basis?

Moderator · Conference Operator

Thank you.

The next question is from the line of Kirtan Mehta from BOB Capitals.

Please go ahead.

Kirtan Mehta

Thank you Sir for giving this opportunity.

You had mentioned 2800 conversions happening on the commercial side in Q4. Could you give us the sort of level of conversions that you have seen in Q4 across categories of vehicles and also for the annual FY2022?

Moderator · Conference Operator

Thank you.

The next question is from the line of Ankit Agarwal from PhillipCapital.

Please go ahead.

Ankit Agarwal

Just one clarity, I needed.

You said 2.5 MMSCMD is the APM gas volume that we got and the priority sector total consumption was around 2.75 so that implies a shortfall of around 9% to that rate whereas you mentioned 15% to 17% shortfall here?

Moderator · Conference Operator

Thank you.

Ladies and gentlemen due to paucity of time that would be our last question for today.

I now hand the conference over to the management for their closing comments.

Thank you and over to you!

Thank you very much.

Ladies and gentlemen on behalf of YES Securities Limited that concludes this conference.

Thank you all for joining us.

You may now disconnect your lines.

Questions and answers

System · Call Header

Good afternoon and welcome to the earnings conference call of Mahanagar Gas Limited for the fourth quarter of the Financial Year 2021-2022.

I would like to thank all of you who have connected for our earnings call today.

India is witnessing recovery in economic activity after COVID.

Accelerated pace of vaccination, uptick in consumer and business confidence with better outlook on the general economic situation have resulted in greater degree of optimism.

However, adverse residual effects of the pandemic across the globe coupled with major geo-political upheavals have resulted in a surge in commodity prices matched by high inflation.

Crude oil price has soared to above US$100 per barrel mark and likewise imported RLNG prices have touched new highs.

Mahanagar Gas May 11, 2022 For MGL, Q4 of FY 2021-22 was impacted by the third wave of COVID resulting in lower sales volume but the recovery has been fast and the average gas volumes sold in March 2022 increased by 14% as compared to that of January 2022.

Despite the second and third waves of COVD, we could fast track our infrastructure creation efforts across MGL’s existing license areas.

During the quarter 79,130 domestic households were connected and thus we have established connectivity with about 1.86 million households.

During FY 2021-22, we provided connectivity to 2.62 lakh households and bettered our previous best of providing 1.98 lakh coonectivity.

We laid 125 km of steel and PE pipelines in the quarter thereby taking the aggregated pipeline length to about 6,221 km.

We added 14 new CNG stations and with these, we currently have 290 stations.

We also added 107 I&C consumers and thus as on quarter end we have 4,339 I&C Commercial customers.

In respect of our Raigarh GA, we are connected to 53,030 domestic households and 23 CNG stations are currently operational.

During the quarter we laid 26.23 km of pipeline in Raigarh GA thereby taking the total length of pipeline to 346 km.

Such expansion of our pipeline network has also resulted in commissioning of the first online CNG station in Raigarh GA at Somatane.

In January 2022, the Company achieved the cumulative inch-km target as per PNGRB’s Minimum Work Programme for Raigarh GA.

You may recall that we had already achieved the cumulative number of Domestic PNG connections target by March 2020.

With this, the Company has fully met its Minimum Work Programme targets for Raigarh.

Possibly, MGL is the only CGD company which has completed its minimum work programme against a bid out license area.

This shows the Company’s sincerity in adhering to its commitments.

Coming to MGL’s operations, average sales volume for the year ended 31st March 2022 is 2.999 MMSCMD whereas it was 2.211 MMSCMD in the corresponding period last year.

Thus, there is an increase of 35.63% in the overall sales volume compared to the previous year.

Average sales volume for the year ended 31st March 2022 of 2.999 MMSCMD consists of CNG volume of 2.114 MMSCMD, Domestic PNG volume of 0.466 MMSCMD and I&C volume of 0.419 MMSCMD.

Mahanagar Gas May 11, 2022 Compared to the previous year, sales volume in case of CNG has increased from 1.415 MMSCMD to 2.114 MMSCMD which is an increase of 49.40%.

In case of I&C sales, volume has increased from 0.332 MMSCMD to 0.419 MMSCMD which is an increase of 26.2%.

Domestic PNG sales volume has increased marginally, from 0.464 MMSCMD to 0.466 MMSCMD which is an increase of 0.43%.

EBITDA for the Financial Year 2021-22 is Rs.924 crore compared to previous financial year EBITDA of Rs.934 crore.

EBITDA margin is at 25.96% for FY 2021-22 compared to previous financial year EBITDA margin of 43.39%.

Net Profit After Tax for FY 2021-22 is Rs.597 crore compared to Net Profit After Tax for previous financial year of Rs.620 crore.

Aggregated sales volume to the priority sector was more than available APM gas allocation which resulted in shortage in the range of 15 to 17% during the quarter.

This gap was met through purchase of Market Priced Gas.

Spot gas prices remained high due to various global factors.

Thus, priority sales volumes beyond APM gas allocation and substantial increase in Spot gas prices put pressure on the margins of priority sector during the quarter.

Nevertheless, as a customer focussed Company, we met the total demand of priority sector without imposing any dry out.

However, the Company undertook upward revision of CNG and Domestic PNG prices in January 2022 from Rs.63.50 per Kg to Rs.66 per Kg and from Rs.38 per SCM to Rs.39.50 per SCM respectively.

Government of Maharashtra reduced VAT on natural gas from 13.5% to 3% with effect from 01st April 2022 and consequently, prices of CNG and Domestic PNG were reduced to Rs.60 per Kg and to Rs.36 per SCM respectively.

Further, notified price of APM gas was revised from US$2.97 per MMBTU to US$6.14 per MMBTU with effect from 01st April 2022 and the Company passed through the above increase Mahanagar Gas May 11, 2022 in gas cost through its retail CNG and Domestic PNG prices in a phased manner during April 2022 and revised CNG and Domestic prices from Rs.60 per Kg to Rs.76 per Kg and from Rs.36 per SCM to Rs.45.50 per SCM respectively by the end of April 2022.

In case of supplies to the I&C customers, high RLNG costs had put pressure on margins as the I&C sales prices are linked to alternate fuels which did not see similar increases.

The Company has partially recovered the margins by charging premium over alternate fuel linked prices.

To reduce dependence on Spot gas and optimise the overall gas purchase portfolio, the Company had entered into a contract for purchase of term gas during the Q3 for a period of 18 months and during Q4 another term gas contract was signed for a period of 5 years.

Coming to quarter on quarter comparison, average sales volume for Q4 FY 2021-22 is 3.170 MMSCMD and is lower than previous quarter average of 3.303 MMSCMD.

This reduction is mainly due to third wave COVID which struck in January 2022.

Such average sales volume of 3.170 MMSCMD consists of CNG volume of 2.277 MMSCMD, Domestic PNG volume of 0.474 MMSCMD and I&C volume of 0.418 MMSCMD.

Q4 EBITDA has substantially improved to Rs.215 crore as compared to Rs.103 crore in the previous quarter.

EBITDA margin has increased to 19.83% for Q4 compared to previous quarter EBITDA margin of 10.03%.

Net Profit After Tax for the quarter has increased by 132% to Rs.132 crore from previous quarter Net Profit After Tax of Rs.57 crore.

As you would be aware that on 06th May 2022, Ministry of Petroleum and Natural Gas has come out with the Guidelines for domestic gas supply to CNG and Domestic PNG segments of CGD networks.

The guidelines aim at meeting 100% of CNG and PNG requirement of CGD entities through a mix of domestically produced APM, non-APM and HPHT gas duly supplemented through term or spot RLNG, as required.

Mahanagar Gas May 11, 2022 CGD entities are now expected to get such pooled natural gas 2.5% over and above their 100% requirement of CNG and Domestic PNG segments of each GA calculated on the basis of consumption in the previous quarter.

Such revision in gas allocation policy is expected to have a positive impact on CGD sector with regard to availability and overall pricing thereby facilitating the CGD companies to deliver better results.

MGL’s Board of Directors has approved final dividend of Rs.15.50 per equity share for FY 2021- 22, thus along with the already paid interim dividend of Rs.9.50 per equity share, total dividend for FY 2021-22 stands at Rs.25 per equity share which is an increase of 20% from 230% dividend paid for FY 2020-21.

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.

The first question is from the line of Probal Sen from ICICI Securities.

Please go ahead.

Probal Sen

Thank you for the opportunity.

Good evening Sir.

Sir the first question was with respect to the gas supply new guidelines that you mentioned which would be positive.

Just to understand what has been put out is basically that two things, one is shortening of the review period from the quarter from six months and second it is still basically the intent to supply 100% gas on a best effort basis but if we look at the domestic gas supply that is been made available over the last several months, very clearly there is no additional domestic gas that will be made available and the balance has to be met from premium gas as well as spot RLNG.

I am just kind of trying to understand how does it change things for us from what is there currently wherein any case 15% to 18% gas is being met by market price source, so what changes with respect to these guidelines if you can just give us some thoughts on this?