MGLNSEQ1 FY23August 16, 2022

Mahanagar Gas Limited

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Management on call

Sanjib Datta

MANAGING DIRECTOR, MAHANAGAR GAS LIMITED

Sanjay Shende

DEPUTY MANAGING DIRECTOR, MAHANAGAR GAS LIMITED

Rajesh Patel

CHIEF FINANCIAL OFFICER, MAHANAGAR GAS LIMITED

Probal Sen

ICICI SECURITIES

Key numbers — 40 extracted

100%

NG and CNG in transport. This is a very positive step which provides assurance to CGD industry for 100% gas availability, for meeting the demands of the priority sector. This would also go a long way in

6.5%

mmitment of government of India to take the share of gas in the primary energy basket from present 6.5% to 15% by 2030. Mahanagar Gas Limited August 08, 2022 Prior to the issuance of our

15%

of government of India to take the share of gas in the primary energy basket from present 6.5% to 15% by 2030. Mahanagar Gas Limited August 08, 2022 Prior to the issuance of our guideli

10%

estic PNG requirements of a CGD entity based on half yearly consumption in previous half year plus 10%. However, under the new guidelines, APM allocation is revised on a quarterly basis by considering

2.5%

APM allocation is revised on a quarterly basis by considering consumption of previous quarter plus 2.5%. This helps the CGD entities to grow their demand by using market determined price gas for a quart

1.93 million

ter 62,075 domestic households were connected and thus we have established connectivity for nearly 1.93 million households. We have laid 65.21 kilometers of steel and PE pipelines, thereby taking the aggregated

8.8%

s during the quarter, we achieved overall average gas sales volume of 3.448 MMSCMD, an increase of 8.8% over previous quarter volume of 3.170 MMSCMD. Compared to the previous quarter, sales volume in ca

11.5%

ales volume in case of CNG has increased from 2.277 MMSCMD to 2.539 MMSCMD which is an increase of 11.5%. In case of industrial and commercial sales, volume has increased from 0.418 MMSCMD to 0.439 MMS

4.9%

trial and commercial sales, volume has increased from 0.418 MMSCMD to 0.439 MMSCMD, an increase of 4.9%. Sales for domestic PNG for the quarter was at 0.470 MMSCMD as against previous quarter volume of

INR 286 crore

was at 0.470 MMSCMD as against previous quarter volume of 0.474 MMSCMD. Current quarter EBITDA is INR 286 crore compared to previous quarter EBITDA of INR 215 crore, which is a growth of 32.5%. EBITDA margin is

INR 215 crore

me of 0.474 MMSCMD. Current quarter EBITDA is INR 286 crore compared to previous quarter EBITDA of INR 215 crore, which is a growth of 32.5%. EBITDA margin is at 19.63% for current quarter as compared to previou

32.5%

BITDA is INR 286 crore compared to previous quarter EBITDA of INR 215 crore, which is a growth of 32.5%. EBITDA margin is at 19.63% for current quarter as compared to previous quarter EBITDA margin of 1

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Guidance — 20 items

Neha

opening

“As a reminder, all participant lines will be in the listen only mode.”

Neha

opening

“And there will be an opportunity for you to ask questions after the presentation concludes.”

Sanjib Datta

opening

“Further, we have been switching to CNG from diesel for LCVs used for transportation of CNG from mother station, and currently 95 out of 167 LCVs are running on CNG and we plan to be completely shifting to CNG within a short span of time after expiry of the existing LCV hiring contract.”

Sanjib Datta

“Similar is the case with pipeline infrastructure which has been put in place and going forward that kind of Capex is also going to go in the sector.”

Sanjib Datta

“So, we think that there will be a gap and we will have of course currently it's a tough time and as MD said, it's a challenging time for all the commodities including CNG.”

Sanjib Datta

“And this is under serious consideration at the end of the Government of India, Ministry Petroleum and we are quite hopeful that some additional quantity of HPHT gas which will have a much, much you know though it will be higher compared to the APM gas, but it will be much lower than what you know the long term contract of the spot, where the spot prices are.”

Sabri Hazarika

“And the share of like spot in this mix will be something like 20%-25%, is that right?”

Sabri Hazarika

“So, you're saying 15% to 20% of that pool gas prices will be spot LNG.”

Rajesh Patel

“The moment the situation slightly favors the industry, I think there will be substitution of low price gas compared to spot, which is currently being pooled.”

Rajesh Patel

“So, that will help going forward maybe I think very difficult to predict the time but it should be very soon that is what our guess is.”

Risks & concerns — 13 flagged

The risks and the uncertainties related to these statements includes, but are not limited to risk and uncertainties regarding fluctuation in sales volume, fluctuation in foreign exchange, other costs and our ability to manage growth.

— Neha

In the immediate term, this could be a concern.

— Rajesh Patel

But when we see a long term, we don't see that as a concern.

— Rajesh Patel

It's very difficult to I think come up like that, but I would say,you know, if overall industry is having a requirement around 21 to 22 MMSCMD of gas against that if there is a supply of around 18 to 19 MMSCMD, it could be in the range of around 15% or so.

— Rajesh Patel

So, that will help going forward maybe I think very difficult to predict the time but it should be very soon that is what our guess is.

— Rajesh Patel

So, considering the price hikes that you have taken, I think it is quite commendable that you have been able to pass on unlike others, are we like fully passing on this increase in pool gas price or is there any I mean, are we still at around this 9 to 10 range or at least for till now in July and August or is there any kind of margin pressure considering the pressure like rupee and all also currently somewhat unfavorable?

— Rajesh Patel

But very difficult to say number but I think this is what we have budgeted for quite a high number.

— Rajesh Patel

So, since we have a one price for all kinds of customers, it's very difficult for me to answer that question.

— Rajesh Patel

However, your question very specifically with respect to six months is quite difficult if you look at the 6th May guideline where Government has given 100% assurance that itself shows their commitment and the journey towards increasing the natural gas basket from 6.5% to 15% by 2030.

— Rajesh Patel

What forms and what this, I think difficult to answer right now.

— Rajesh Patel

estimating something we are also more or less in the same boat, you know, more difficult question to answer very, very pinpointedly with numbers.

— Rajesh Patel

So, what is the sort of Capex acceleration that you could do it in this year when the impact of COVID restrictions is much lower?

— Rajesh Patel

Mahanagar Gas Limited August 08, 2022 So, as an industry as a whole if one is putting so much of Capex and the kind of investment this industry requires, certainly high prices is a matter of concern.

— Rajesh Patel

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Q&A — 12 exchanges

Sir, CNG prices today are at only 20% discount to petrol and only 10% discount to diesel and future cost increases will need even more price hikes. So, would it be correct to assume that now for a new customer, there is no advantage to shift to CNG or maybe after the price hikes that are going to come, there'll be no advantage? I think a very good question from your side. Many of the listeners will have this question in mind good that you asked. Let me clarify that you know 20% discount is probably the minimum discount with respect to petrol vehicle and our CNG vehicle. If you consider energy

Rajesh Patel

Further, the numbers of vehicles which are converted during the quarter Q1 is similar to what has been the trend. We have got almost 19,000 plus vehicles during the quarter added on to CNG which includes OEM as well as conversion of diesel and other vehicles. And similar trend even continues now. Thank you for such a detailed answer. Just one follow up in mileage terms what is the indifference point for the customers both for petrol as well as diesel? So, if you will say a liter of petrol gives you mileage of let's say 18 to 20 kilometers per liter, CNG should be giving at least 4 to 5 kilomet

I have a few questions. Firstly, with respect to this pool prices and your margin scenario. So, you gave us the number for May and June but what would be the number for July and August for this pool gas price?

Rajesh Patel

It has gone up by at least $1-$1.5 since then. That is for July, or that is for August? July and August both I'm saying. Roughly $1 was in the month of July, later on it has been further increased by another $1-$1.5. And the share of like spot in this mix will be something like 20%-25%, is that right? It's very difficult to I think come up like that, but I would say,you know, if overall industry is having a requirement around 21 to 22 MMSCMD of gas against that if there is a supply of around 18 to 19 MMSCMD, it could be in the range of around 15% or so. However, the price of gas, what is blend

So, the CV convergence momentum, do you see a question problem in terms of queuing at the outlet and seen signs of it build up?

Rajesh Patel

You're asking whether I'm seeing queuing at the outlet? That's correct. Especially with the CVs volume picking out? CV, Commercial Vehicles? You are saying Commercial Goods Vehicle? Yes, that's correct. Because the size is bigger so lot of outlet may not be in a position to cater that. Yes, number of CVs continues to be, more than 2500 every quarter and this quarter also the number is in the similar range almost you know, 2700 commercial goods vehicle including LCV and HCV has been added in this quarter. See, these are I think vehicles are getting added at different pockets or different areas

Yes, thank you for the opportunity. Sir, you mentioned that the CGDs have made a representation to the government and you spoke about looking for additional HPHT allocation. Is there anything else that you have also requested? I mean, this is in the context of some press reports, saying that the oil ministry is considering, you know, reducing the APM allocation to the power sector and allocating it to CGDs. Is that proposal that is being seriously considered and do you think it can be implemented? Let me tell you know HPHT gas blending by GAIL is already mentioned in the circular dated 6th May

Sanjib Datta

I think ministry is cognizant that in some places CNG prices have even crossed petrol prices and diesel prices, there is differential between CNG and petrol is got squeezed to a very large Mahanagar Gas Limited August 08, 2022 extent. And we know that there is something in the ministry that they are working on. And we expect that some favorable dispensation for meeting the demands of CGD in terms of pricing as well as availability are being considered within the Ministry and we hope to see that some positive announcements are made in coming days. Sir, and my next question was just on your indu

Thanks for the opportunity, Couple of question. First is that you had this last year, November or December you sourced some medium term contract of LNG. I think it was around 0.1 MMSCMD. And at that time, you were using that for the shortfall of APM in CNG and household volume. When 16th of May onwards, Government has announced the CGD pool, so where has this 0.1 MMSCMD volume you're shifting that to, the entirely to the industrial or have you used this take or pay contract you probably had with GAIL and you limit the volume? We have you know different term contracts, roughly three term contra

Rajesh Patel

or anything of that sort, full term contract minimum quantity is getting consumed for industrial and commercial requirements. Is it fair to say this 0.44 MMSCMD of industrial and commercial has entirely been met with the term LNG or is there any spot LNG part of that? Fully met through term contracts, there could be some minor operational requirement which can be you know, which we have to keep it ready through spot. As you know November, December 2021 we had signed one and then in the late March 2022 we signed one Henry Hub based contract. So, all the contracts put together we are able to cat

So, first question at today's price of INR 86,the August UBP price of $10 plus is fully passed on and what is the Forex that is getting factored into this INR 86 today? See we have factored in both exchange increase which was hovering around 76-77 to today at 79-80 as well as the increase in the UBP or the uniform based price. But I won't be able to bifurcate how much for this because it's a combined price rise which one does for all elements of cost, including exchange rate as well as gas costs and if there are any others like power and fuel, etc.

Soumya B

No, not power and fuel. Looking for the bifurcation that rather this $10 plus of UBP in August that's getting passed on at INR 86? That's what I wanted to understand. Not completely I would say. Other part of it, we have passed through, yes. Because see, it’s a month-on-month feature. So UBP will keep on changing month on month. We would weigh and see how do we you know balance out the price and the conversion momentum. Got it, sir. The second question is on HPHT gas that you referred to, so is the quantum that is expected to come? Mahanagar Gas Limited August 08, 2022 Media reports generally

You mentioned that you are trying to sort of balance two objectives while sort of maintaining the growth versus margin. So, to maintain that balance right, what do you think the is the right differential to have with petrol and diesel which will not prohibit future growth? I think rather than this I would answer it this way. Anybody using a car would look at payback in terms of roughly 18 months or so. So, depending on his use, he will come on, so somebody who's using a car daily and running a good amount of kilometers, he will be always incentivized at a price or the gap could be lesser for h

Rajesh Patel

estimating something we are also more or less in the same boat, you know, more difficult question to answer very, very pinpointedly with numbers. Understood, sir. Second question was about the basically the Capex acceleration that you plan to do. Last year, you were constrained because we were emerging out of the COVID restrictions. So, what is the sort of Capex acceleration that you could do it in this year when the impact of COVID restrictions is much lower? We have already done our Capex outflow around 150 crore plus in this three months. So, we will be doing better than this going forward.

I just have a few questions. So, in terms of trade discount, that has been like, decided for the oil marketing company, so can you give us an indication in terms of how much it has gone up by as compared to what it used to be at the previous level? See, the new guidelines, which is given by Ministry has given different trade discounts based on the class of cities. So, lowest ranges from around 4.6 and the highest goes up around 5.4 per kg. That's the range.

Nitin Tiwari

Understood. And secondly, sir, in terms of CNG sales, so what was our sales volume in terms of kgs, not SCM but kg, in this quarter? In this quarter, we have sold around 1.8 million kg. 18 lakh kg per day.

Congratulations for a great set of numbers. It's just an observation. I'd like to know your sense on that. I've been observing that your competitors, especially IGL, they've been expanding rapidly in the nearby states be it Rajasthan or any other state. So, what's your sense in that is, are we going to do the same thing? Are we going to expand into the nearby states as well? I think it’s a question which IGL will be able to answer or as far as we are concerned, currently we have what are the GAs we have, so within which we can do expansion. I did not get your question, are they doing expansion

Rajesh patel

Typically, I think top line depends on the as you're saying on commodity prices. So, if you look at my top line in terms of value, we'll grow it because as you see, today also when I had to pass on the input gas cost price, my topline has moved, but I think more relevant should be to look at in terms of the volume of sales which we're doing, right. So, topline is a resultant figure.

So, question is related to increase in APM gas prices in October 2022. As per the formula, it would be near to double digit from the current level of $6.1 per MMBTU. So, what would be the probability that the government can intervene and cap the rises in APM gas rises? Can you provide any color on the side?

Rajesh Patel

I think when you're saying APM you mean you mean UBP, uniform base price, right, correct? No, sir, I'm mostly talking about the APM which is coming from the nominated field? You are referring to whatever is currently 6.14, you are saying that can go more than $10? Correct, as per the formula. And the other part what government will do is I think their decision, however there was a representation being made by CGD as industry, I think it's too early to even say that you know 6.14 will become double digit, because yet all the figures are not available, so let's wait for the actual numbers to com

Sir, at current elevated CNG and PNG prices, do we see any demand slowing down?

Rajesh Patel

I think it is too early to predict, just I think few days back it has happened, of course. But right now, we are not seeing any demand going down. I think that one can only see over a longer Mahanagar Gas Limited August 08, 2022 period of time, how does it impact the momentum of new vehicles coming on to CNG and see that. Very early to I think guess what is the trend. So far, as I said, the quarterly numbers are also in line with the previous quarter. Even current let's say July conversions are also in the similar range.

Just wanted to check regarding the pricing for C&I customers. Q1 was particularly exceptionally strong. So, has that pricing come off during the second quarter? And we have also seen a movement downwards in the brent, so has your term contract pricing also moved in the similar quantum, if you can just quantify maybe in percentage terms? What kind of movements are you seeing for the same higher price realizations? See, we have a pricing policy of billing or pricing linked to alternate fuels. And alternate fuel prices have gone up in the current quarters. If you see per tonne of LSHS was hoverin

Ankur Agarwal

That's helpful. Then secondly, I mean, just there was a continuation to the previous question as well. I mean the term contract pricing would have probably moved downwards now with brent prices also coming off? You're saying, compared to Q4? Q1 FY23? Q4 with this year Q1? Yes. No, I think most of the indexes have gone up slightly and it must have gone up by around $1.5 to $2 be it Henry Hub, be it brent link contract. In crease in the term contract was lower compared to the realization on the sales price side that has added to the good margins in case of industrial and commercial. This was wha

Speaking time

Rajesh Patel

Moderator

Sabri Hazarika

Sanjib Datta

Varatharajan

Saurabh Handa

Yogesh Patil

Ankur Agarwal

Soumya B

MODERATOR

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Opening remarks

Neha

Good afternoon, ladies and gentlemen, and welcome to Mahanagar Gas Ltd. Q1 FY23 Conference Call hosted by ICICI Securities. 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 any 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 will now hand the conference over to Mr. Probal Sen from ICICI Securities. Thank you and over to you, sir. Thank you, Ryan. Thank you everyone for making the time to attend this post Q1 FY23 results discussion call with Mahanagar Gas Limited management. We are privileged to have with us the senior management from Mahanagar Gas including Mr. Sanjib Datta, the Managing Director; Mr. Sanjay Shende, the Deputy Managing Director; and Mr. Rajesh Patel, the Chief Financial Officer of the company to discuss the results. Witho

Sanjib Datta

Thank you, madam. Good afternoon to all and welcome to the earnings conference call of Mahanagar Gas Limited for the first quarter of the financial year 2022-2023. I would like to thank all of you who are connected for our earnings call today. Over the past few months all of us have witnessed India's resilience and recovery in economic activities 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 continuing major geopolitical upheavals have resulted in a surge in commodity prices matched by high inflation. First quarter of FY23 has been a testing time for MGL and the entire CGD industry due to high input gas cost, mainly due to geopolitical factors and supply shortages across the world. Besides price of APM gas was revised from USD 2.97 per MMBTU to USD 6.14 per MMBTU wit

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