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    Mahanagar Gas

    MGLGood
    Oil, Gas & Consumable Fuels·25 Oct 2024
    Management Summary

    MGL delivered strong volume growth of 13% YoY, driven by aggressive marketing schemes and industrial conversions, despite facing a sharp reduction in low-cost APM gas allocation. Management is pivoting towards diversification, announcing a significant entry into the EV battery space to de-risk from fossil fuels. While margins face pressure from higher gas sourcing costs, the company maintains its ₹10-12/SCM EBITDA guidance by leveraging operational efficiencies and its position as the lowest-cost provider.

    Highlights

    8

    • Overall average gas sales volume increased 13.07% YoY to 4.042 mmscmd.

    • EBITDA for the quarter stood at ₹399 crores, a slight decline from ₹418 crores in Q1 FY25.

    • Net PAT reported at ₹283 crores compared to ₹285 crores in the previous quarter.

    • EBITDA margin maintained within guidance at approximately ₹11 per SCM.

    • Significant reduction in APM gas allocation for CNG from ~105% to ~57-58%.

    • Announced a strategic diversification into EV battery cell manufacturing with a ₹385 crore investment for a ~40% stake in IBC US.

    • Volume growth guidance for FY25 raised to approximately 10% (up from previous 6-7%).

    • Added 5 CNG stations and 99 industrial/commercial customers during the quarter.

    Concerns

    1

    • APM Gas De-allocation

    Key financials

    Single quarter

    04 metrics
    1. 01EBITDA₹399 Cr-4.5%QoQ
    2. 02PAT₹283 Cr-0.7%QoQ
    3. 03Average Gas Sales Volume4.042 mmscmd+13.1%YoY
    4. 04EBITDA per SCM₹11

    Segment breakdown

    CNG
    2.886 mmscmd Volume
    Domestic PNG
    0.528 mmscmd Volume
    Industrial and Commercial
    0.628 mmscmd Volume
    UEPL (Subsidiary)
    ₹173 Cr Revenue (H1)10 Rs EBITDA per SCM₹6 Cr PAT (Quarter)
    List

    Guidance & targets

    5
    CategoryTargetPriority
    Volume
    Annual Volume Growth
    10%
    		High
    Margin
    EBITDA per SCM
    ₹10 to ₹12
    		Medium
    Capex
    Annual Capex
    ₹800-1000 crores
    		Medium
    Capacity
    CNG Station Additions
    85 to 90
    		High
    Other
    EV Battery Revenue Contribution
    20-25%
    		Low

    Risks & concerns

    5
    RiskSeverity

    APM Gas De-allocation

    Sudden 20% cut in absolute APM allocation forces reliance on more expensive HPHT or spot gas. — Both acknowledged

    high

    Competition from Alternate Fuels

    Narrowing price gap between CNG and Petrol/Diesel could slow down vehicle conversions. — Analyst downplayed

    medium

    Regulatory Exclusivity End

    PNGRB notices regarding the end of marketing exclusivity for 73 GAs, including MGL's areas. — Analyst acknowledged

    medium

    Areas of Evasion(2)

    • Specific impact on gross margins if costs are not passed on.
    • Rationale behind the government's sudden decision to divert APM gas.

    Q&A highlights

    3

    “So 71% was the overall CNG and PNG... So CNG has come down in this last reallocation to around 57%, 58%.”

    Confirms the severity of the low-cost gas cut, which is a major headwind for marketing margins.

    asked by Amit Murarka, Axis Capital

    2 min read5 chapters

    Detailed Narrative

    01

    Volume Growth Outpaces Guidance

    MGL reported a robust 13.07% YoY increase in average gas sales volume, reaching 4.042 mmscmd. This growth was driven by a 7% increase in the first half of the year, leading management to raise its full-year volume growth guidance to approximately 10%, up from the previous 6-7%. The industrial segment saw double-digit growth following a two-year initiative to convert industries from liquid fuels by offering guaranteed discounts.

    02

    APM Allocation Shock and Sourcing Strategy

    The company faced a significant reduction in low-cost APM gas allocation, with CNG allocation dropping to 57-58% from over 100% previously. Management noted this absolute reduction was about 20%. To mitigate this, MGL is aggressively bidding for HPHT gas and 'New Well' gas (priced at ~12% of the Indian crude basket) and exploring mid-term spot contracts to optimize the blended cost.

    03

    Strategic Pivot to EV Batteries

    MGL entered a non-binding term sheet with International Battery Company (IBC) for a ₹385 crore equity investment (40% stake) to set up a 1 GWh battery cell manufacturing facility. The project, which can scale to 5 GWh, represents MGL's strategy to diversify into non-fossil segments, targeting 20-25% of the bottom line from such areas in the long term. Phase 1 capex is estimated at ₹850 crores.

    04

    Margin Resilience Amidst Cost Pressures

    Despite the APM cuts, MGL maintained an EBITDA of ₹11 per SCM in Q2, staying within its long-term guidance of ₹10-12 per SCM. Management emphasized that they are the lowest-cost CNG provider in India, giving them 'sufficient legroom' to absorb some cost increases to maintain volume momentum and customer confidence in the 15-year vehicle lifecycle.

    05

    Infrastructure and Subsidiary Performance

    The company added 5 CNG stations in Q2, bringing the total to 352, and plans to add 85-90 stations annually including its subsidiary UEPL. UEPL achieved an average sales volume of 0.164 mmscmd and an EBITDA of approximately ₹10 per SCM. The merger of UEPL with MGL has been approved by the Board and is awaiting regulatory clearances.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.