MGLNSEQ4FY23May 09, 2023

Mahanagar Gas Limited

8,072words
136turns
14analyst exchanges
4executives
Management on call
Ashu Shinghal
MANAGING DIRECTOR
Rajesh Patel
CHIEF FINANCIAL OFFICER
Rajesh Wagle
SENIOR VICE PRESIDENT, MARKETING
S. Ramesh
NIRMAL BANG EQUITIES PRIVATE LIMITED
Key numbers — 40 extracted
10%
tions of Kirit Parikh committee with effect from 8th of April 2023. APM gas will now be priced at 10% slope to Indian crude basket on monthly basis with a floor of $4 per MMBtu and a ceiling of $6.5
Rs. 2.50
lity of HPHT gas on priority, MGL reduced its CNG prices with effect from 1st of February 2023 by Rs. 2.50 per kg, i.e., from Rs. 89.50 per kg to Rs. 87 per kg. Further, post implementation of new pricing
Rs. 89.50
, MGL reduced its CNG prices with effect from 1st of February 2023 by Rs. 2.50 per kg, i.e., from Rs. 89.50 per kg to Rs. 87 per kg. Further, post implementation of new pricing formula, CNG prices were ag
Rs. 87
G prices with effect from 1st of February 2023 by Rs. 2.50 per kg, i.e., from Rs. 89.50 per kg to Rs. 87 per kg. Further, post implementation of new pricing formula, CNG prices were again reduced effecti
Rs. 8
implementation of new pricing formula, CNG prices were again reduced effective 8th April 2023 by Rs. 8 per kg, i.e., from Rs. 87 per kg to Rs. 79 per kg. Similarly, domestic PNG prices were also reduce
Rs. 79
G prices were again reduced effective 8th April 2023 by Rs. 8 per kg, i.e., from Rs. 87 per kg to Rs. 79 per kg. Similarly, domestic PNG prices were also reduced by Rs. 5 per SCM with the same effective
Rs. 5
g, i.e., from Rs. 87 per kg to Rs. 79 per kg. Similarly, domestic PNG prices were also reduced by Rs. 5 per SCM with the same effective date of 8th April from Rs. 54 to Rs. 49 per SCM. MGL continues t
Rs. 54
stic PNG prices were also reduced by Rs. 5 per SCM with the same effective date of 8th April from Rs. 54 to Rs. 49 per SCM. MGL continues to create CGD infrastructure across its business segments in the
Rs. 49
rices were also reduced by Rs. 5 per SCM with the same effective date of 8th April from Rs. 54 to Rs. 49 per SCM. MGL continues to create CGD infrastructure across its business segments in the licensed a
2.17 million
r, 92,274 domestic households were connected and thus we have established connectivity for nearly 2.17 million households, i.e., 22 lakh households. We have also laid 128 km of steel and PE pipelines thereby
22 lakh
ere connected and thus we have established connectivity for nearly 2.17 million households, i.e., 22 lakh households. We have also laid 128 km of steel and PE pipelines thereby taking the aggregate lengt
14.11%
MD against 2.999 MMSCMD in the corresponding period last year. Therefore, there is an increase of 14.11% in the overall sales volume compared to the previous year. Average sales volume for the current
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Guidance — 20 items
Coming to the quarter-on-quarter comparison
opening
“Thus, we expect that with reduction in these CNG prices, new growth volume should pick up.”
Probal Sen
qa
“You had earlier highlighted a certain CAGR that you sort of aimed to achieve in terms of 5% to 6%.”
Probal Sen
qa
“My question was with the kind of steep reduction in CNG prices that has been afforded due to passing on of the domestic gas cost, do we see a stronger demand momentum at least in the near term for FY24 or are we still happy with sort of maintaining that broad guidance of 5% to 6% growth annualized?”
Management
qa
“I think we have been always indicating or giving the guidance of roughly 5% to 6%.”
Management
qa
“If you look at my volume growth since FY 2018-19 till 2022-23, despite COVID and despite volatility in gas prices and high gas prices, we are still clicking a CAGR of around 4.85%, very near to 5%.”
Management
qa
“So, we expect that the numbers should pick up and maybe 5% to 6% can be slightly better than that also.”
Management
qa
“Whatever the reduction due to Kirit Parikh has happened, we have passed on to the customers, but we will again review the situation on month-on-month basis and if there is something more which can be passed on to get gain in the volumes, we will be certainly looking at it.”
Abhilasha Satale
qa
“As our cost structure is also shifted downwards and we have passed on most of the benefit to the consumers, what is our target or what do we see our EBITDA per SCM to be in the range of that Rs.”
Management
qa
“So, we expect that at least next few months, we should be in a position to maintain our margin.”
Management
qa
“We will be evaluating spot what is beneficial for near term and then tying up for long-term gas under HPHT also.”
Risks & concerns — 6 flagged
Just to give you a brief of the financial performance and the physical numbers of the Company, and before that, just to set the tone, domestic gas prices and gas allocations have remained a challenge during this financial year.
— Management
However, with the notification of government on HPHT (high pressure high temperature) areas, given the priority to allocation to CGD and new domestic gas pricing policy from April ‘23, this has given a good relief to the CGD sector.
— Management
And what’s the risk of electrification that you foresee?
— Rajesh Aynor
However, with availability of HPHT on priority for CNG and domestic, I think the major concern is not there and also spot is comfortable today and going down.
— Management
So, attributing any particular growth rate, analyzing it that way is slightly difficult because these are almost seamlessly connected.
— Management
But the analysis becomes a bit difficult when it comes to CNG.
— Management
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Q&A — 14 exchanges
Q
You spoke about the HPHT gas replacing costlier LNG. If we can kindly get some details in terms of the overall volumes that we have, what is the extent of HPHT gas that we have in our portfolio, and how much was the LNG consumption for this quarter and for this year?
Management
Total HPHT for Q4, we have used is around 0.19 and balance was APM as far as CNG and domestic PNG is concerned. CNG and domestic put together was roughly…. The volumes were slightly down in case of CNG, around 2.93 MMSCMD. And both CNG and domestic requirement was fully catered through APM and HPHT for this quarter. You also asked what was the spot for RLNG. During the quarter, roughly we have bought around 0.14 MMSCMD of spot and rest was through term contracts which we have in place for I&C. This is the primary breakup. The second question was with respect to volume growth. You had earlier h
Q
My question is again related to volumes only. During the quarter, we have seen some reduction in volumes. How have the conversions moved during the quarter, and with the reduction in pricing, are we seeing any pickup in the conversions. And of course, if you could give number of NCV conversion quantity.
Management
If you see quarter 2 and quarter 3, we were generally having vehicle on CNG roughly in the range of 15,500 to 17,000. Q4 there was a little reduction and the number is roughly 14,000 approximately. Within that, commercial vehicle you wanted to know how much is the commercial vehicle addition? Yes, that will be good. Commercial vehicle is roughly 1,300+ small commercial vehicles, tempos, and trucks put together. Roughly 1,350. I missed the number for Q4. Did you mention that because Q2 and Q3 you said 15,000 and 17,000. And Q4, what was that number? 13,700. With the reduction in the prices what
Q
Sir, my question is on total volume consumption on the CNG side. Can you give us some idea about how much is consumed let’s say by the buses, by private cars when conversion happens, and by the three-wheeler autos? Any ballpark number which is the major or larger segment for us?
Management
I think we have answered this question on previous calls also and I will repeat once again. Buses comprise about 8% of our CNG volumes, then auto rickshaws is about 35% or so, private cars and taxis aggregators put together would be about 45%, and the remaining would be commercial goods vehicles like small light commercial vehicles, trucks, etc. In that case, what is the penetration in terms of the park which is available versus opportunity of private car side because auto I guess should be completely on the CNG, so should the buses. And what’s the risk of electrification that you foresee? If
Q
Sir, my question is on the UEPL subsidiary. Did we get the final approval on the acquisition?
Management
The final approval is yet to be received because there is a lock-in period of 5 years which is ending in September 2023. So, we expect by October or November, the approval from the regulator should be available and then the transaction will take place of transferring the share and the money transfer. Do we have the volume number for UEPL for FY23? Around 0.1 MMSCMD.
Q
I just had two simple questions. First of all, you said that we have a revenue target of say 5% to 6% growth, right?
Management
Not the revenue, volume target. What would be the revenue target if there is any? Revenue is dependent on so many other factors like the cost of procurement which is a pass- through cost. So, revenue actually depends on the cost of procurement and the pricing which we do. Will we be able to see the previous 35-40 EBITDA margins going forward, the OPMs? How long would it take? As far as percentage is concerned in case of CGD, let us say when my CNG was priced at Rs. 50 and later on when gas prices went up by say Rs. 20 and I had to pass through that Rs. 20, maybe whatever was my margin, within
Q
Sir, can you help us understand how much will be the percentage APM deficit in FY24 assuming 5% to 6% volume growth and the similar number for FY23?
Management
FY 23 roughly we have got APM around 92% to 93%. And if I am not very pessimistic or optimistic also, we should get around 88% to 90% in FY 23-24 as well. However, this allocation will keep on changing. This I am referring to domestic gas volume APM gas. However, with availability of HPHT on priority for CNG and domestic, I think the major concern is not there and also spot is comfortable today and going down. Sir, you mentioned 88% or 83% for FY25? Current year, around 93% we have got APM. And FY24 you are expecting? Next year, we assume that it should be in the range of 88% to 90%. But if yo
Q
My first question is on EBITDA margin. Even though we had a great quarter on this front – It is the highest in the last 5-6 quarters – but if I look at the past 9-10 years, we closed the year with lowest EBITDA margin ever. Are we expecting those 30% to 35% levels plus EBITDA margins like we had 2 years back?
Management
As I said earlier, I think it is not right to monitor our EBTIDA margin in percentage terms. If gas prices go down from here, I may pass on the gas cost reduction, so my percentage may improve. If the gas prices go up, I pass on that burden onto the consumer and the percentage may fall. Looking at margins for us or CGD companies in terms of percentage to sale price is not a very right parameter to look at. Rupees per SCM or per kg is a very good parameter to look at it. Normally, the cost is pass-through. So, we don’t keep that margins with us. EBITDA to the sales is not a correct parameter to
Q
Sir, you had earlier guided for some upgradation of outlets. Has there been any upgradation done during the last quarter as well as the financial year? I thought we were planning to add dispensing units that is part of your expansion program earlier which you had guided for.
Management
The CNG stations are upgraded in 2 manners. One that we add new CNG stations. Around 24- 25 new CNG stations were added in the whole financial year and almost 41 CNG stations were upgraded. When we say upgraded, it means either addition of compressor, dispenser, or capacity upgradation or things like that. In total, we have done 65 upgradation and new CNG stations in the whole financial year. And this run rate is expected to continue? 2023-24 we have set up more aggressive targets in terms of new CNG stations and upgradation will be in the similar lines. If you can spell out that number? Aroun
Q
Sir, just 3 quick questions from my side. Sir, if you could help us understand on the operating cost side, what was exactly the reason cost has remained largely steady Y-o-Y and are materially down Q-o-Q? Secondly, on the I&C realizations if you could help us with the realizations for this quarter? And lastly, you had helped us with these numbers earlier but what had been the total gas sourcing for FY24? What is the breakup across the various sources of gas?
Management
We don’t have exact breakup as such but let’s say whatever is our requirement for CNG and domestic PNG will be through APM and HPHT mainly. If there is any shortfall in that, it will be catered through spot RLNG and rest as far as I&C is concerned, we have the terms contracts in place as far as gas sourcing is concerned. And sir, what would be the total HPHT which we have tied up already? We have roughly earlier Reliance 0.1 and now we have tied up recently in the RIL auction 0.1, so 0.2 roughly, but of course, the earlier one pricing is different than the new one as per HPHT pricing of around
Q
Sir, can you please share what was the APM gas allocation for the quarter 4 and what is the current proportion of APM gas for the priority segment? Sir, this question is important from the point of view of your gross margin improvements in this quarter. If your CNG volume has declined sequentially and your input APM gas sourcing remain at the same level in the absolute number, then it suggests that the APM share in the priority basket is higher which led to the lower cost of gas and that has ultimately led to the gross margin improvement. Is that a correct understanding on the APM side?
Management
Partly yes because we have had availability of around 2.73 MMSCMD of APM during Q4. But the reason for gas cost reduction is reduction of spot and replacement with HPHT. Earlier quarter, I had consumed in the overall Company around 0.36 of spot whereas I in Q4 around 1.89 MMSCMD of HPHT has been consumed. Also, the prices of spot in Q3 were roughly average of $33 whereas in Q4, it has come down to as low as $17 per MMBtu odd, a little more than $17. The gas which I replaced was spot to HPHT as compared to Q3, there was a reduction from $33 to $12.5. And the spot which I consumed also had a red
Q
If we look into Q4, I think EBITDA per SCM was one of the highest, probably the highest barring one quarter when it went up to 14 and now you have mentioned that the gas costing mix is somewhat similar at least for the next 1 to 2 quarters and you have also passed on whatever benefit has accrued from lower APM gas prices. From a 1 to 1.5 quarter perspective, is this Rs. 12 to Rs. 13 per SCM EBITDA sustainable now or do you think that you could be passing on further and bring the margins to a more normalized levels?
Management
If you talk about EBITDA per SCM is Rs. 9.5 year on year and Q4 is Rs. 12.8. So, slightly better as compared to the full year. We will have a relook at these numbers in going future, and if some more price reduction is required, we will do that. But right now, we are not envisaging any such thing. We understand that on the industrial commercial, it is completely a formula-driven mechanism, but on CNG and domestic PNG, I think some of your peer group companies have some EBTIDA per SCM in their minds, and based on that, they do the pricing. In your case also, is it the same or you will be taking
Q
Last year, we started deploying CDUs. Can you help us understand what happened throughout the year? What kind of volume came from it? How many have been deployed and what are your plans for FY24?
Management
Unfortunately, the CDU roll out is still stuck in a few regulatory hurdles. Currently, the approvals which we are getting from PESO are not permitting us to deploy the CDU as it is, in true spirit of the CDU. It is becoming more like a location-specific approval where I can’t really move the CDU around. If you are fixed to any location, it makes more economic sense to have a small conventional CNG station there which is much cheaper than a CDU. You can have larger sales volumes also. So, though we have given out 2 or 3 LOIs to some parties to deploy CDUs, we haven’t seen much progress on that.
Q
One question on the growth rate that we have seen in GA1 and GA2. Would you be able to give a breakup of the volume growth that we have seen in these two GA’s?
Management
Before that, just one point I would like to make. A big chunk of our volume is CNG, 70% +, and as far as GA1 and GA2 are concerned, a huge common boundary is there in between Thane, Navi Mumbai, Mira-Bhayander, etc., where vehicles keep coming in and out, in and out, they fill depending on their convenience either in GA1 or GA2. So, attributing any particular growth rate, analyzing it that way is slightly difficult because these are almost seamlessly connected. If you look at the PNG sector, yes, there we can have some proper numbers because the households, industries, and commercial establish
Q
Before we close the session, I would like to have your thoughts in terms of what is the contribution from new OEM vehicles in your conversions for 4th quarter? And do you see any increase in the number of new OEM CNG vehicles? Because Maruti is talking about very ambitious growth plans for CNG vehicles. What is your view on that?
Management
You are talking of commercial vehicles or passenger cars? Both, because Delhi in IGL, they are talking about primarily new CNG cars but in your case perhaps, you are looking at both. So, we would like to have a color in terms of if you are looking at the overall number of conversions, what would be the split between actual genuine physical conversion and new OEM models and within that if you can give some color on cars and trucks, it would be great. Retrofitting is almost negligible now. With so many OEs coming with some many CNG variants, whoever had to retrofit earlier because he was finding
Speaking time
Management
65
Moderator
16
Sabri Hazarika
7
Abhilasha Satale
6
Varatharajan S.
6
Hemang Khanna
5
Kirtan Mehta
5
S. Ramesh
4
Devansh Nigotia
4
Yogesh Patil
4
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Opening remarks
S. Ramesh
Good evening and thank you very much. On behalf of Nirmal Bang Institutional Equities, I have great pleasure in inviting you all to the Q4 FY23 Earnings Call with the Management of Mahanagar Gas Limited. Their Company is represented by Mr. Ashu Shinghal – Managing Director, Mr. Rajesh Patel – Chief Financial Officer, and Mr. Rajesh Wagle – Senior Vice President, Marketing. May I hand over the call to Runjhun from E&Y to give the disclaimer statement following which we will have opening remarks from the management and Q&A. Runjhun, over to you.
Runjhun Jain
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 contained in the statements are reasonable. However, these statements involve a number of risks and uncertainties that may lead to different results. The risks and the uncertainties related to these statements are included but not limited to fluctuation of sales volume, fluctuation in foreign exchange or the cost and ability to manage growth. I urge you to consider the quarterly numbers not a reflection of long- term trends or an indication of full year results. They should not be attempted to be extrapolated or interpolated into a full-year number. That said, I would now hand over the call to management. Thank you and over to you, sir.
Management
A very good afternoon to all connected with the call. On behalf of MGL Management, I welcome all to the Earnings Call of this 4th Quarter Results of Financial Year 2022-23. I would like to thank all of you for attending our call today. Just to give you a brief of the financial performance and the physical numbers of the Company, and before that, just to set the tone, domestic gas prices and gas allocations have remained a challenge during this financial year. However, with the notification of government on HPHT (high pressure high temperature) areas, given the priority to allocation to CGD and new domestic gas pricing policy from April ‘23, this has given a good relief to the CGD sector. In February ‘23, gas from HPHT is available to CGDs for CNG and domestic PNG on priority allocation as per MoPNG notification dated 13 January. This helped CGD entities in replacing earlier costlier LNG (RLNG) for CNG and PNG with HPHT gas. Further, the government also has changed the APM pricing formu
Coming to the quarter-on-quarter comparison
Average sales volume of Q4 FY23 is 3.372 MMSCMD as compared to previous quarter of 3.412 MMSCMD. The average sales volume of 3.372 consists of CNG volume of 2.41, domestic PNG volume of 0.51, and I&C volume of 0.452 MMSCMD. Compared to the previous quarter, overall volume has reduced due to 2.6% reduction in CNG volume. This is primarily due to high CNG prices of Rs. 89.5 which has been now reduced to Rs. 87 and further reduced to Rs. 79 with effect from 8th of April. Thus, we expect that with reduction in these CNG prices, new growth volume should pick up. EBITDA for the financial year 2022-23 is Rs. 1,184 crores compared to previous financial year EBITDA of Rs. 924 crores. That is an increase of 28%. Net PAT (profit after tax) is Rs. 790 crores compared to PAT of Rs. 597 crores in previous financial year. That is an increase of 32%. Q4 EBITDA has substantially improved to Rs. 390 crores as compared to Rs. 256 crores in the previous quarter. Mainly, this is a result due to reduction i
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