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    Mahanagar Gas

    MGLGood
    Oil, Gas & Consumable Fuels·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

    8
    • 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

    1
    • Ongoing APM Allocation Reductions

    What Changed2

    vs Q1 FY26

    Guidance items6 → 5 (-1)Risks discussed4 → 3 (-1)
    Key financials

    Metrics

    6

    Periods

    2

    Q3

    2
    • EBITDA
      ₹313 Cr
    • Net Profit
      ₹225 Cr

    9M

    4
    • EBITDA
      ₹1,131 Cr
    • Net Profit
      ₹793 Cr
    • Average Sales Volume
      4.006 MMSCMD
      YoY+12.8%
    • EBITDA per SCM
      ₹10.3

    Segment breakdown

    9M Avg Volume9M Volume Growth
    CNG2.859 MMSCMD11.4%
    Industrial and Commercial0.604 MMSCMD25.5%
    Domestic PNG0.542 MMSCMD7.2%
    Unison Enviro (UEPL)
    Heatmap· 2 shared metrics

    Guidance & targets

    5
    CategoryTargetPriority
    Volume
    Annual Sales Volume Growth (FY25)
    12.5% to 13%
    High
    Volume
    Annual Sales Volume Growth (FY26)
    10%
    Medium
    Margin
    EBITDA per SCM
    ₹10 to ₹12
    Medium
    Capex
    MGL Q4 Capex
    ₹200 to ₹250 crores
    High
    Revenue
    EV Battery Revenue per GW
    ₹900 to ₹1,000 crores
    Medium

    Risks & concerns

    4
    RiskSeverity

    Ongoing APM Allocation Reductions

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

    high

    Forex Volatility

    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

    medium

    Industrial Margin Sensitivity

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

    medium

    Areas of Evasion(1)

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

    Q&A highlights

    3

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    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.