Mahanagar Gas Limited — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

MGL delivered a strong operational performance in Q3 FY25, characterized by double-digit volume growth in its core CNG and Industrial segments. While margins faced some pressure due to APM allocation cuts in October/November, the partial reinstatement of APM gas in January 2025 and strategic price hikes have stabilized the outlook. Management is pivotally diversifying into the EV value chain through a lithium-ion cell manufacturing JV, while banking on favorable regulatory shifts in Mumbai to drive long-term CNG adoption.

Highlights

  • 9-month FY25 EBITDA reached ₹1,131 crores with Net Profit at ₹793 crores

  • Average gas sales volume for 9M FY25 grew 12.75% YoY to 4.006 MMSCMD

  • Q3 FY25 Standalone EBITDA stood at ₹313 crores with PAT of ₹225 crores

  • CNG volumes for 9M FY25 increased by 11.44% YoY to 2.859 MMSCMD

  • Industrial and Commercial segment saw robust 9M volume growth of 25.52%

  • Interim dividend approved at 120% (₹12 per equity share)

  • Mumbai High Court order directing a study to phase out diesel/petrol vehicles cited as a major growth catalyst

  • Investment of ₹35 crores for a 44% stake in a new EV battery manufacturing JV (IBC)

Concerns

  • Ongoing APM Allocation Reductions

Key financials

2 periods

Q3

  • EBITDA
    ₹313 Cr
  • Net Profit
    ₹225 Cr

9M

  • EBITDA
    ₹1,131 Cr
  • Net Profit
    ₹793 Cr
  • Average Sales Volume
    4.006 MMSCMD
    YoY +12.8%
  • EBITDA per SCM
    ₹10.3

What they filed

Q1 FY27: revenue up 14.0%, net profit down 39.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,786 1,758 1,963 2,081 2,049 +15%2,058 +17%2,051 +4%2,372 +14%
EBITDA413 314 395 501 338 −18%352 +12%260 −34%343 −32%
Net profit287 225 242 320 193 −33%202 −10%132 −45%194 −39%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Segment9M Avg Volume9M Volume Growth
CNG2.859 MMSCMD11.4%
Industrial and Commercial0.604 MMSCMD25.5%
Domestic PNG0.542 MMSCMD7.2%
Unison Enviro (UEPL)——

Guidance & targets

Volume

  • Annual Sales Volume Growth (FY25) Volume · FY25 · High confidence 12.5% to 13%

    Previously 8% → 12.5% to 13%

    So if we take Q4 also into account maybe we will clock around 12.5% to 13% growth year-on year.

    — Management

  • Annual Sales Volume Growth (FY26) Volume · FY26 · Medium confidence 10%
    we are comfortable that around 10% numbers we will be able to clock next financial year also.

    — Management

Margin

  • EBITDA per SCM Margin · Medium Term · Medium confidence ₹10 to ₹12
    So it is not very off the mark of the guidance which we have given about INR10 to INR12.

    — Management

Capex

  • MGL Q4 Capex Capex · Q4 FY25 · High confidence ₹200 to ₹250 crores
    we expect anywhere between INR200 to INR250 additional capex in Q4 as well.

    — Management

Revenue

  • EV Battery Revenue per GW Revenue · by 2026-27 · Medium confidence ₹900 to ₹1,000 crores
    It is INR1,000 crores revenue will be there, it is around that number or 1 gigawatt factory.

    — Management

Risks & concerns

  • Ongoing APM Allocation Reductions

    high

    Management expects a further 7% per annum reduction in APM gas, requiring replacement with costlier HPHT or Henry Hub linked gas.

    Both acknowledged

  • Forex Volatility

    medium

    Every ₹1 depreciation of the Rupee adds approximately ₹0.22 to ₹0.25 per SCM to gas costs as purchase prices are dollar-denominated.

    Management acknowledged

  • Industrial Margin Sensitivity

    medium

    Industrial margins are linked to alternate fuels like LDO and FO; a fall in crude prices can compress these margins.

    Analyst acknowledged

Areas of evasion (1)

  • Specific slopes and fixed components of confidential gas supply contracts.

Q&A highlights

3 direct
Impact of Mumbai High Court order on vehicle phasing Direct
We can see a growth of around 15% to 20% in case everything goes in favor of CNG... around 4 lakh [commercial vehicles] in our geographies... currently, we have around 38,000 such commercial vehicles already on CNG which is about 9.5%, 10% penetration.

Reveals a massive untapped market in commercial vehicles that could accelerate volume growth if court-mandated diesel phasing occurs.

Asked by Yogesh Patil

Margin sustainability and APM gas restoration Direct
More or less 50% of the gas cut has been restored and we have already taken a hike... we are back to almost neutral situation of what we were in October mid as of today in January.

Confirms that recent price hikes and partial APM restoration have mitigated the margin compression seen in Q3.

Asked by Amit Murarka

Economics and timeline of the EV battery JV (IBC) Direct
The first phase will be 500 megawatt two plants... it will start earning revenues from 1.5 years from now... we have taken a discounted rate of around 18% or so [IRR].

Provides concrete timelines and return expectations for MGL's major diversification move into non-gas businesses.

Asked by Probal Sen

2 min read 5 chapters

Detailed narrative

Regulatory Tailwind: Mumbai High Court Pollution Mandate

A significant portion of the call focused on a recent Mumbai High Court order directing the state government to study phasing out diesel and petrol vehicles in favor of CNG and electric power. Management identified a massive opportunity in the commercial vehicle segment, where current CNG penetration is only 10% (38,000 out of 400,000 vehicles). If implemented, this could boost CNG volume growth to 15-20%, mirroring historical trends seen in Delhi's NCR region.

Strategic Diversification: EV Battery Manufacturing

MGL is aggressively diversifying into the EV value chain through a JV with International Battery Company (IBC). The company has invested ₹35 crores for a 44% stake in a project to manufacture lithium-ion cells. Phase 1 targets a 1GW capacity with an estimated revenue potential of ₹900-₹1,000 crores, expected to start contributing in approximately 18 months. Management is targeting an 18% IRR for this niche project, banking on domestic manufacturing protections and technology from a South Korean partner.

Margin Management Amidst APM Cuts

Despite significant cuts in APM gas allocation during the quarter (October and November), MGL managed to maintain an EBITDA per SCM of ₹10.3 for the 9-month period. Management noted that 50% of the cuts have since been reinstated as of January 16, 2025. Combined with two price hikes (₹2 and ₹1 per kg on CNG), the company expects margins to improve in Q4, remaining within their long-term guidance band of ₹10 to ₹12 per SCM.

UEPL Integration and Performance

The wholly-owned subsidiary Unison Enviro (UEPL) reported Q3 revenue of ₹102 crores and a modest net profit of ₹1.27 crores. While UEPL's net margins appear low due to high amortization of authorization costs and interest on inter-company loans, its cash EBITDA is healthy at ₹50-₹55 crores per annum. Management expects UEPL to deliver 20%+ volume growth, significantly outperforming the core portfolio's growth rate.

Sourcing Mix and Forex Exposure

MGL has actively adjusted its gas sourcing portfolio to counter APM reductions, increasing Henry Hub linked contracts to 1.45 MMSCMD and securing 0.5 MMSCMD of HPHT gas. However, management highlighted that all local gas purchases are dollar-denominated, leaving the company unhedged against Rupee depreciation. A ₹1 fall in the exchange rate impacts costs by ₹0.22-₹0.25 per SCM, though natural hedges exist in industrial pricing linked to dollar-denominated alternate fuels.

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