Mahanagar Gas delivers big on profits despite low volumes
Mahanagar Gas Ltd reported strong margin improvement in the June quarter despite the covid-induced lockdowns affecting volumes.
Total gas sales volume fell 17.1% sequentially to 2.398 mmscmd (million standard cubic metres per day). CNG sales volumes saw the maximum impact, declining 22.5% due to lockdowns in Mumbai. Piped natural gas or PNG household sales, nevertheless, remained firm growing 3.6% sequentially, and offered some respite.
The firm realizations supported revenue and operating performance. Overall sales revenue at ₹610 crore fell 14.3% sequentially. Gross margins were at a record high of ₹19.4 per standard cubic metre or scm(up 10% sequentially and 21% year-on-year). According to analysts at Nomura Research, this was ahead of their estimate of ₹18.9 per scm due to the full impact of retail (CNG, domestic PNG) price hikes taken in 21 February and lower gas costs of ₹8.8 per scm.
Not surprising Ebitda per SCM was again at a record high of ₹13.9 per scm against ₹12.15 per scm in Q4 and 76% higher year-on-year. This, too, was much higher than analysts’ estimates.
Margin prospects remain firm moving forward too, what with domestic gas prices remaining at similar levels so far this quarter. Though with rising spot gas prices and some rise in international gas prices, there could well be an upward revision in domestic administered prices of gas from 1 October after the six-month review.
Analysts at Jefferies India Pvt. Ltd said, “Even if Mahanagar Gas were to fully pass through the impact of the potential sharp rise in APM gas cost and a possible 60% rise in dealer commission, then too CNG would remain at an attractive discount of 40-55% to diesel and petrol.” As a result, analysts remain comfortable on the margin outlook for Mahanagar Gas.
However, the metro rail expansion plan poses risks to Mahanagar Gas’s CNG sales volume in Mumbai, say some analysts. Yogesh Patil, senior research analyst at Reliance Securities Ltd, expects Mahanagar Gas’s sales volume growth to remain tepid on the back of new metro lines getting operational in the next 1-2 years. Further, space constraints for setting up new CNG stations in Mumbai and no new geographic area to aid volume growth story are other reasons that keep volume prospects weak, says Patil.