Mahanagar Gas Limited
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3executives
Management on call
S Ramesh
NIRMAL BANG EQUITIES PRIVATE LIMITED
Sanjib Datta
MANAGING DIRECTOR — MAHANAGAR GAS LIMITED
Rajesh Wagle
SENIOR VICE PRESIDENT,
Key numbers — 40 extracted
1.79 million
48.02%
69.47%
37.04%
0.63%
Rs.709 Crore
Rs.618 Crore
28.66%
43.06%
Rs.465 Crore
Rs.407 Crore
66%
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Guidance — 20 items
Management
opening
“I am happy to announce that in January 2022, the company has achieved the cumulative inch kilometer target as per PNGRB's minimum worth program target for Raigad GA.”
Management
opening
“Though profitability for the quarter has not been commensurate to the company's track record but we feel that the situation on the gas availability and gas pricing front, will improve in near future and the company will be able to deliver better results.”
Management
opening
“Now see our gas price hikes which we have taken and the progressively of the APM gas price further increase, our not increasing the gas prices so the CNG prices are dependent on that the spot either goes down or we start getting this incremental gas which you have contracted, so when do you anticipate that gas will start coming to you or it has already started, this long-term gas?”
Management
opening
“Having said that, we have taken almost four price increases in the quarter and those were step up price increases and full effect of that will come in the subsequent quarter that is Q4 as well as in the first quarter of the next year.”
Management
opening
“So there will be a good amount of recovery of the gas costs which has already happened and for the full volumes for Q4 and QI of the next financial year, so that will also help us in further improving the profitability, even some impact due to price APM price getting revised.”
Management
opening
“Looking at the past trend, it is all up to the government to decide how much APM price they will declare, not necessarily that it will be based on formula driven, they can have a call on what is to be the final price.”
Management
opening
“If required by pooling a little bit of market price gas into the APM gas and give it to the CGD at a relatively lower blended cost so even if that happens then that will be much cheaper than the price of LNG which can be spot or mid term.”
Management
opening
“Where do you see it is going to, not in this quarter; again this quarter will be a transitory quarter, the next, next quarter from April onwards?”
Management
opening
“Management: (cid:9) It will be a result of multiple factors but having said that there will be profitability improvement due to the price rise already taken so it will definitely improve compared to the present level.”
Management
opening
“As you said, the RLNG prices are coming down so either we will maintain or we will reduce if the prices go further because it will be a trade-off between volumes, if you see my Q3 volumes because of the premium charge have gone down compared to Q2 so looking at the overall profitability we will balance out between the price and the volumes so we may either maintain or reduce if the RLNG prices further comes down from the levels today.”
Risks & concerns — 11 flagged
The risks and the uncertainties relating to this statement includes but are not limited to risk and uncertainties regarding fluctuations in sales volumes, fluctuations in foreign exchange, other costs, and our ability to manage growth.
— S. Ramesh
The outbreak of COVID-19 pandemic in 2020 and its second wave in April and May 2021 had resulted in significant disturbances and slowdown of economic activities and the company's operations were impacted due to restrictions that were imposed in our operating areas.
— Management
Thus, shortage of APM gas allocation, increase in APM price, and unprecedented increase in spot gas prices all have substantially put pressure on the margins for priority sector during the quarter.
— Management
In case of industrial and commercial supplies, high RLNG costs had put pressure on margins as industrial and commercial sales prices linked to alternate fuels did not have similar increases.
— Management
But again, how much exactly it is very difficult to put a number to it, because a lot of factors result in that final numbers so when the factors are basically very difficult to predict or pin down.
— Management
The issue with CNG and domestic PNG is that the government has issued 100% allocation of whatever is your sales level, given that policy, some implementation delays happening for the first time this time, it is difficult to take a call to sign a medium term contract for this because we need to keep in mind all these medium term contracts come with a firm 'take or pay' clause.
— Management
It will put us at a risk of take or pay on these term contracts because we will be having more firm gas than we can sell.
— Management
You are right, there was a pressure on the margin and at times when the RNLG was very high price, we have gone into marginally negative also per SCM.
— Vishnu Kumar
Management: (cid:9) Actually, that is difficult because that will involve allocating term and spot gas to different segments, so this is done at a company level, so I do not know if it is possible to give.
— Vishnu Kumar
Last one question, I have is when we analyze the results of yours versus your peers particularly IGL and all have any similar kind of a pricing pressure right and input cost pressure it seems that you have done on a relatively higher price high compared to the others, but at the same time, if you see there is some significant pressure that this whatever the missing element you have this shortfall of the APM, is different across the plane?
— Maulik
It is difficult for any CGD company to say what is going to happen in the future, but having said that in whichever way things go if there is a large shortfall in availability of gas and at least we do not have the disadvantage of serving many, many more virgin GAs and putting in huge amount of capex etc., so in that way one point of view is we are better placed compared to some other CGDs because we already have got infrastructure in the ground and with marginal last mile capex.
— Management
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Speaking time
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Opening remarks
S. Ramesh
Thank you. Good evening ladies and gentlemen. On behalf of Nirmal Bang Institutional Equity, I have great pleasure in inviting all of you to this Q3 FY2022 earnings conference call with the distinguished management of Mahanagar Gas Limited. Representing the company, we have Mr. Sanjib Datta, Managing Director, Rajesh Patel, Chief Financial Officer and Mr. Rajesh Wagle - Senior Vice President, Marketing. I would now request the management to make their opening remarks followed by Q&A. Management Representative: Thank you Ramesh. 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 statement are reasonable; however, the nature involves a number of risks and uncertainties that may lead to different results. The risks and the uncertainties relating to this statement includes but are not limited to risk and uncertainties regarding fluctuations in sales volumes, flu
Management
Thank you. Good afternoon and welcome to the earnings conference call of Mahanagar Gas Limited for the Q3 of the financial year 2021-22. I would like to thank all of you who have connected for our earning call today. The outbreak of COVID-19 pandemic in 2020 and its second wave in April and May 2021 had resulted in significant disturbances and slowdown of economic activities and the company's operations were impacted due to restrictions that were imposed in our operating areas. However, from June 2021 the situation has progressively improved as economic activities have returned to normalcy to a large extent. While this has been a welcome development, the shortage in supplies of APM gas coupled with very high spike in international spot gas prices during Q3 of FY2021- 22 have had a deleterious effect. Geopolitical tensions in Ukraine, uncertainty of Russian gas supplies to Central Europe, issues with the Nord Stream 2 pipeline, low storage inventories and strong gas demand owing to cold
Aishwarya Agrawal
Thank you very much. Good evening Sir; first two questions one is how do you see with this APM gas prices which we expect to increase from first of April to say $6 and maybe from first of October again so with such a steep price hikes in the APM gas, how do you think that you will be able to cope up that is one and the second is this long-term gas which we have contracted what is the price of that gas and what is the volume?
Management
Well, the APM gas price is expected to go up on first April and first October of course but if you look at the quantum of the expected increase, we are expecting that the current high levels of RLNG which are prevailing, the drop in them over the next one or two quarters will probably compensate for this increase in APM. So, on overall weighted average cost of gas basis, hopefully, we do not see too much of an increase and if there is any increase, we can pass that (cid:9) MAHANAGAR GAS through. We are also hopeful that maybe in the coming couple of months or so the APM allocation would be revisited and revised, that has been pending for a few months now. Once that happens it will reduce our weighted average cost of gas because our actual sales in the CNG and domestic PNG segments have increased quite significantly compared to the old allocation level which we have for this APM gas, as a result of which once the government formula for re- allocation kicks in, we will get substantial re
Management
Quantity is around 0.15 MMSCMD for the new contract which we entered during this quarter, and we already had around 0.1 MMSCMD earlier, so roughly it is 0.25 MMSCMD is the term gas contract. The contract which is entered in this quarter is for around 18 months. Aishwarya Agrawal: (cid:9) Sure. This is a very informative. Now see our gas price hikes which we have taken and the progressively of the APM gas price further increase, our not increasing the gas prices so the CNG prices are dependent on that the spot either goes down or we start getting this incremental gas which you have contracted, so when do you anticipate that gas will start coming to you or it has already started, this long-term gas? Management: (cid:9) The long-term gas which is contracted has already started in December. It is not exactly long- term; it is mid-term. Aishwarya Agrawal: (cid:9) 18 months contract. So, despite that gas coming in we end up increasing the gas prices, that means you have been able to replace
Management
No Not really because the domestic gas which we get for CNG and domestic PNG, as per the government circulars, that gets reallocated every six months and CGD entities are supposed to get whatever is their prior period sales level in these two segments. They are supposed to get that much and a little bit more in the coming forward six months. So considering that, there is a technical difficulty in contracting long-term or medium-term firm take or pay gas for these segments because the minute the reallocation happens, then there is a risk of take or pay on your firm contracts, which we have to do, we have to take a bit of spot, which does not attract take or pay or for which your exposure is maximum for one month and also you have to optimize on the pricing by periodically entering into trenches of firm medium term gas which we continue to do. Aishwarya Agrawal: (cid:9) Sir I can see that around 2.9 MMSCMD gas is meant for the CNG and domestic PNG out of 2.9 how much APM are we getting a
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