MGLNSEq2fy23November 18, 2022

Mahanagar Gas Limited

6,870words
143turns
13analyst exchanges
4executives
Management on call
Sanjay Shende
DEPUTY MANAGING DIRECTOR, MAHANAGAR GAS LIMITED
Rajesh Patel
CHIEF FINANCIAL OFFICER, MAHANAGAR GAS LIMITED
Rajesh Wagle
SENIOR VICE PRESIDENT, MARKETING, MAHANAGAR GAS LIMITED
Ankur Agrawal
PHILLIPCAPITAL (INDIA) PRIVATE LIMITED
Key numbers — 39 extracted
2.5%
s allocation was revised on a quarterly basis by considering consumption of previous quarter plus 2.5%. This helps the CGD entities like Mahanagar Gas to grow their demand by using market price gas fo
90%
PM and CBG or some portion of HPHT that is high pressure, high temperature gases is approximately 90% of the CGD requirement for the priority sector. On the demand side, MGL continues to create CGD i
1.99 million
+62,000 domestic households were connected and thus, we have established connectivity for nearly 1.99 million households in our licensed area. We have laid the 39 kms of steel and PE pipeline, thereby taking
25%
to the H1 of the previous year has increased to 3.453 MMSCMD from 2.76 MMSCMD an increase of over 25%. CNG volume has also increased to 2.540 MMSCMD from 1.89 MMSCMD which is an increase of 34.51%.
34.51%
ver 25%. CNG volume has also increased to 2.540 MMSCMD from 1.89 MMSCMD which is an increase of 34.51%. Industrial and commercial sales volume has also increased to 0.442 MMSCMD from 0.410 MMSCMD, an
7.8%
and commercial sales volume has also increased to 0.442 MMSCMD from 0.410 MMSCMD, an increase of 7.8% and the sales volume for domestic PNG has increased to 0.470 MMSCMD from 0.459 MMSCMD, an increas
2.4%
the sales volume for domestic PNG has increased to 0.470 MMSCMD from 0.459 MMSCMD, an increase of 2.4%. Coming to MGL’s operation during the quarter, we have achieved an overall average gas sales vo
0.3%
the quarter, we have achieved an overall average gas sales volume of 3.459 MMSCMD, an increase of 0.3% over the previous quarter volume of 3.448 MMSCMD. Compared to the previous quarter, sales volume
0.1%
volume in the case of CNG has increased from 2.539 MMSCMD to 2.541 MMSCMD which is an increase of 0.1% only. In the case of industrial and commercial sales volume has increased from 0.439 MMSCMD to 0.
1.8%
trial and commercial sales volume has increased from 0.439 MMSCMD to 0.447 MMSCMD, an increase of 1.8%. Sales for domestic PNG for the quarter has increased to 0.471 MMSCMD as against the previous qua
Rs. 253 crore
the previous quarter volume of 0.470 MMSCMD, an increase of 0.3%. The current quarter’s EBITDA is Rs. 253 crores compared to the previous quarter EBITDA of Rs. 286 crores. EBITDA margin is at 16.18% for the qu
Rs. 286 crore
0.3%. The current quarter’s EBITDA is Rs. 253 crores compared to the previous quarter EBITDA of Rs. 286 crores. EBITDA margin is at 16.18% for the quarter as compared to the previous quarter EBITDA margin of
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Guidance — 20 items
Ankur Agrawal
opening
“They will share the initial remarks on the quarterly performance of the company and that will be followed by the Q&A session.”
S. Ramesh
qa
“And what will be the share of spot LNG in your overall gas purchase basket?”
Management
qa
“As far as CAPEX is concerned, up to September we have already spent around 300 crores, little less than 300 crores and since our actual construction season starts post monsoon, we will be doing CAPEX in the range of around 650 to 800 crores.”
S. Ramesh
qa
“Can we get some sense in terms of what is the upside in volumes you we can expect, how do you spend 800x3 or 2,400 crores of CAPEX?”
Management
qa
“We maintain the guidance on growth in the range of around 6% CAGR, 3-to-5-year CAGR.”
Management
qa
“However, on a 3 to 5 year’s period, we will maintain the guidance at around 6% with our City Gate Station getting set up in GA-3.and slowly, we will convert some of these stations which are currently running on daughter booster mode or non-online mode to online.”
Management
qa
“However, if you look at it on annual or CAGR basis, you will see the consistent growth which is there.”
Aditya Suresh
qa
“First is in terms of your margins, is it fair to say that at the current CNG price of 89.5, oil is constant in the current environment even we are able to protect your existing margin, even in the next quarter or do you see that margins should fall given where we are from a pricing perspective?”
Management
qa
“Our endeavor will be always to maintain the margin.”
Management
qa
“Currently, we are comfortable with the kind of price rise we have taken but we'll have to wait and watch how spot prices move going forward and we'll take a call accordingly.”
Risks & concerns — 15 flagged
The risk and uncertainties related to these statements are included but not limited to fluctuation sales volume, fluctuation foreign exchange or the cost and ability to manage growth.
— Diwakar Pingle
The present pooled gas allocation which is essentially nothing but APM and CBG or some portion of HPHT that is high pressure, high temperature gases is approximately 90% of the CGD requirement for the priority sector.
— Management
This quarter- on-quarter increase, flat, decrease, jump, that is very difficult to micromanage or explain on that granularity.
— Management
So overall, gas cost has increased and realization in case of I & C has been under pressure because of the linkage to alternate fuels.
— Management
I would certainly say that margins are under pressure because as you are saying 40% APM price has gone up.
— Management
So certainly, margins are going to be under pressure.
— Management
APM gas and blended with some amount of high pressure, high temperature gas as well as CBG that is compressed bio gas.
— Management
The timelines are a little uncertain, but we definitely look forward to the outcome of the Kirit Parikh report because it was especially constituted for taking into account the aspirations of the city gas companies in the country.
— Management
As of now I think commenting on this is very difficult.
— Management
I think a period of a quarter or two quarter to comment on whether the momentum has impacted due to price or not is very difficult because a lot of vehicle booking might have been done earlier.
— Management
First quarter actually very difficult to say because in the first quarter there was a pooled gas supply.
— Management
In fact, in this quarter also it is slightly difficult to say because up to 15th of August the blending was done by GAIL and we were supplied at one price.
— Management
In this volatile input gas cost environment, what one should assume for the second half of FY23 and the upcoming period FY24?
— Yogesh Patil
Our endeavor will be always to maintain however it is difficult to comment on futuristic numbers.
— Management
Now as far as petrol goes currently also, we don't perceive any material challenge on the customer value proposition front because even at today's prices, CNG is turning out to be more than +40% economical compared to petrol, which is a huge incentive.
— Management
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Q&A — 13 exchanges
Q
If you can explain to what extent the price increase you have taken in CNG and PNG in November as offsetting the increase in gas cost? That will help us understand how this will help you maintain or improve margins in this quarter.
Management
I think this is a question pertaining to current quarter that is Q3 and our current prices at 89.50 per kg in case of CNG and Rs. 54 per SCM in case of domestic. To what extent does it help you offset the increase in the gas cost or is it some more price increase required to offset the increase in gas cost? That was the question. If you look at the availability of APM gas coupled with requirement of market price gas to be mixed with this catering to CNG and domestic, the cost keeps on changing. We have more or less passed on. Maybe some marginal amount might not have been passed on, keeping in
Q
What has been the vehicle conversion numbers and we are still quite surprised by the flat volume growth QOQ. Is there any reason why it was so?
Management
If you look at vehicle conversion numbers in Q2, they're marginally lower. Overall, around 15,500 vehicles have come on to CNG this quarter as against probably around 19,000 vehicles in the last quarter which includes more or less similar number on account of commercial vehicles, roughly in the range of around +2200. There is an addition of even private cars 11,300. Even taxis have been added, around 200 and small number of buses around 20. This is the number, so overall around 15,500 is the number added during the quarter. In this context when we have these kind of numbers though it is down Q
Q
First is in terms of your margins, is it fair to say that at the current CNG price of 89.5, oil is constant in the current environment even we are able to protect your existing margin, even in the next quarter or do you see that margins should fall given where we are from a pricing perspective?
Management
See It's not appropriate right now to guess or comment on the Q3 margins. However, I can say that compared to Q1, Q2 margins we have been either able to improve or maintain more or less as far as CNG and domestic PNG is concerned. Both these margins have been well maintained. In fact, we have realized a little more compared to Q1. And as far as industrial and commercial is concerned, since our pricing is linked to alternate fuels, in view of alternate fuels coming down, on an average the basket fuels have seen a reduction of almost 20%-22%. The realization there has gone down compared to Q1, t
Q
Do you have anything on this medium-term contract which you signed last year? Can you just tell us what's the validity of those contracts, for how long those contracts are there?
Management
Out of the term contracts we have one contract which is medium-term and it's roughly ending somewhere in 7-8 months. Next 7-8 months. So, you have three contracts which I think you mentioned in the last con-call. Yes. Other two are for 5 to 6 years. This one was a shorter tenure it is having balance 7-8 months from now. Any updates you have to share on related to with this Kirit Parikh committee which government has set up and also with this ministry notification which was there in mid of August that subsequently going forward the APM gas allocation will be linked to the increase in number of
Q
My first question is on these term RLNG contracts. You said you got around 0.45 MMSCMD and in Q2, how much is the contracted quantity across these three contracts?
Management
Roughly around 0.66. This excludes the KG gas of 0.1, right? Including. It includes, so the LNG part will be around 0.55. You are saying overall spot RLNG.? This 0.66 includes the KG of 0.1, is that correct? So, excluding the KG would be 0.55 of term LNG? Yes. My second question was on industrial and commercial realizations in the quarter. Could you give us the numbers how much they were in Q2? You are saying sales price realization? Yes, the realization. It has ranged between, on an average, Rs. 60 to Rs. 66 per SCM. This is across both industry and commercial? Average of all industrial and c
Q
First question is regarding this ONGC-GAIL pipeline tariff issue. So, you'd be like fighting this out in higher courts, right? So just wanted to know I mean this court appeal would be the last one of it or you have room, if by chance if something comes against your favor then is there any further chance or it is like the final forum?
Management
Certainly, we will be fighting out this case and it can go up to Supreme Court as well. This will be in the Bombay High Court? No. This will be initially in Delhi High court. And then if not then you can… We don’t have right now hearing on this matter. And have you got a hearing? No not yet. We are yet to file our appeal. Secondly one small bookkeeping question. Industrial PNG volumes for the quarter, not industrial, commercial just industrial and also CNG sales in Kilogram? Actually, for industrial and commercial sales, if you note down the figure together it will better because we have been
Q
We are awaiting this Kirit Parikh Committee report and most probably there is a rumor that there will be some downside to the APM prices. As and when it happens what will be our strategy? Will we pass on the benefit to improve discount to the alternative fuels and improve the conversion rate or we are in a position to retain large part of the benefit which will come through us from the cost side?
Management
Certainly, if the price comes down, we would like to pass on. How much passthrough that I think that we'll have to wait and watch. Wait for the exact numbers to decide that but we will have to balance out between value proposition for the customer to come on to CNG and then take an overall decision. There will be pass on to some extent and we will have to decide based on the numbers which comes out. As of now I think commenting on this is very difficult. But in case if we pass it on then would we see incremental conversion? I mean as such even at this rate we are not seeing that substantial co
Q
First of all, could you please share the breakup of input gas volume in terms of gas pool, contracted LNG and spot LNG? If you could provide it in terms of percentage term that would be really helpful?
Management
Could you repeat your question, total gas? Yes. Could you please share the breakup of input gas volume in terms of first gas pool, second contracted LNG and third spot LNG? As far as requirements for priority is concerned, domestic PNG and CNG, we are roughly blending 10% of spot and as far as industrial and commercial volume is concerned, we are able to cater through a term contract fully. How it has changed compared to the first quarter FY23? First quarter actually very difficult to say because in the first quarter there was a pooled gas supply. In fact, in this quarter also it is slightly d
Q
The question pertains to spot LNG buying in the previous quarter, Q2. So industrial more or less would have been sufficient to the mid-term contracts that we have. Just wanted to check that's a right understanding. And second in terms of the priority sector for us, the CNG part, the shortfall would have been to the extent of say 4%-5% and that too from say mid of August. Is that the right understanding?
Management
Yes, you're right because up to mid-August the blended gas was supplied by GAIL and the quantity increased after August. Second question, the medium-term contracts that you have referring to the 0.66 MMSCMD that we have so the balance term for all these three contracts is 7 to 8 months, is that right? I mean though the contract period is different. One is 1-year, the other two are 5-years. But the balance remaining period is only 7 to 8 months? Correct. Up to around I think June ‘23. All three contracts will get over by June ‘23? No. The other two contracts still have a good time. I do not rem
Q
If you're looking at the sensitivity of the CV segment, what is the percentage discount of CNG compared to diesel below which your conversion of CVs will possibly not be as visible? Is there a number you can share with us because that's possibly one segment which is growing exactly because if you're seeing the potential for a correction in diesel spreads and international prices how do you see that play out in the next 1 to 2 years based on your understanding on the ground?
Management
As regards commercial vehicles, there is no one number and we can't say if there is a 10% discount to diesel we'll keep selling because we need to understand that the vehicle categories are also quite diverse. Ranging from a small commercial vehicle to now even heavy commercial vehicles are coming OE fitted with gas engines and the payback period differs for different class of customers depending on not only the spread between CNG and diesel selling prices but also the spread between the initial on-road cost of the vehicle and most importantly how many kilometers that vehicle runs on an averag
Q
Looking at acquiring domestic gas now that RIL as well as ONGC are planning to increase production and there will be auctions from both parties soon. Would you be looking to bid and if at all we will going to bid I am just trying to understand since your volumes grow on a continuous basis what would be the volume you would effectively bid for. Would it cover one quarter, 1-year or 2-years and how do you manage this entire volume at which you want to bid and the term of the contract?
Management
You are talking about ONGC new volumes? Yes, ONGC as well as RIL and the new volumes come if you were to bid, how will you bid in terms of the volumes? Would you bid for a 1-year coverage or 2-year coverage? What will you do in the interim since your volume will be too high for you? Will you be allowed to trade it out for the time being? How do you work that out? For large extent the term of the contract is determined by the seller. So then how do you match your volume in terms of how it grows and? Reliance had made the term also biddable parameter but off late we are not seeing that and we wi
Q
I just wanted to check regarding the margins for the commercial and industrial segment. I mean we understand that pricing has come off from the first quarter currently but brent prices have also come off during that time. Are you seeing some ease in the input gas cost as well? How are the margins waving on the C&I side, if you could help us understand that?
Management
Compared to Q1 the margins are under pressure as far as commercial and industrial is concerned because of the realization mainly and gas cost as well as exchange rate increase during this quarter. Even going forward exchange rate may put pressure and we will have to watch out for gas costs how indexes remain and how spot prices remain going forward. Compared to the second quarter if you have to talk about currently how are you managing? Current quarter, I think let us wait for some time. Maybe it is more or less same as of now compared to Q2 but we will have to watch out for the exchange rate
Q
Thank you to all the participants. I would like to thank the management of Mahanagar Gas Limited for taking out the time for this interactive session. I would also like to thank all the participants who joined on the call today. Thank you all. Over to you Renju.
Management
Thank you very much.
Speaking time
Management
65
Moderator
15
Saurabh Handa
10
Somaya V
10
S. Ramesh
7
Ankur Agrawal
6
Sabri Hazarika
6
Maulik Patel
5
V. Sivasankaran
4
Aditya Suresh
4
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Opening remarks
Ankur Agrawal
Thank you Renju. Good evening to all the participants. On behalf of PhilipCapital India, it is my pleasure to welcome you all to the Mahanagar Gas Limited’s Q2 FY23 and H1 FY23 earnings conference call. Today we have with us the senior management team of MGL. They're represented by Mr. Sanjay Shende – Deputy Managing Director, Mr. Rajesh Patel – Chief Financial Officer and Mr. Rajesh Wagle – Senior Vice President, Marketing. They will share the initial remarks on the quarterly performance of the company and that will be followed by the Q&A session. Before that I would now pass it on to Mr. Diwakar Pingle for reading out the disclaimer. Over to you sir. Thank you.
Diwakar Pingle
Thank you Ankur. Welcome to the participants in this call. 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 the expectation contain in the statements are reasonable. However, these statements involve a number of risks and uncertainties that may lead to different results. The risk and uncertainties related to these statements are included but not limited to fluctuation sales volume, fluctuation foreign exchange or the cost and ability to manage growth. I urge you to consider the quarterly numbers are not a reflection of long-term trends or indication of full year results. They should not be attempted to be extrapolated or interpolated into a full year number. With that said I will now hand over the call to management. Thank you and over to you, sir.
Management
Good afternoon and welcome to the earnings call of Mahanagar Gas Limited for the Quarter 2 of financial year ‘22-23. I would like to thank all of you for attending our earnings call today. Due to continuing geopolitical situation and supply shortages across the world with respect to natural gas, Q2 of ‘22-23 remains challenging for MGL and for the entire CGD industry due to high input gas costs. To meet the growing demand of the sector and to bridge the gap between APM allocation and demand from the priority sector that is essentially CNG and domestic PNG, Ministry of Petroleum and Natural Gas issued revised guidelines in May ‘22 and pooled gas was being provided to all CGD entities at uniform base price or UBP for priority sector. Under these guidelines, pooled gas allocation was revised on a quarterly basis by considering consumption of previous quarter plus 2.5%. This helps the CGD entities like Mahanagar Gas to grow their demand by using market price gas for the quarter and, in sub
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