Mahanagar Gas plans 20% increase in capex at Rs 1,000 crore for FY25: MD

Ashu Shinghal added that the 20 percent drop in net profit it reported for the fourth quarter was primarily due to lower availability of APM gas and CNG price reduction announced by the company.

Mahanagar Gas Ltd (MGL), the city gas distribution or CGD company that serves Mumbai and its surrounding areas, has planned capital expenditure of around Rs 1,000 crore for 2024-25, higher than the Rs 870 crore spent in the previous year, Managing Director Ashu Shinghal told Moneycontrol in an interview.

MGL on May 9 reported a slump of around 20 percent in its consolidated net profit at Rs 252.26 crore in the fourth quarter, compared to Rs 317.18 crore in the preceding quarter. Shinghal explained that the drop in profit was primarily due to lower availability of APM (administered price mechanism) gas and reductions in the prices of compressed natural gas (CNG) undertaken by the company. On March 6, MGL had cut CNG prices by Rs 2.50 per kg after the government criticised CGD companies for failing in passing on the benefits of gas reforms to consumers.

The MGL head further said that availability of APM gas continues to remain a challenge and expects a further decline in its supply in coming months

What is the capex planned for FY25? How do you plan to fund it?

Last year, we spent Rs 770 crore in Mahanagar Gas and around Rs 100 crore in Unison Enviro (a subsidiary that operates in parts of Maharashtra and Karnataka). This year, we expect to spend around Rs 850 crore in Mahanagar Gas and Rs 200 crore in Unison. Put together, the capex will be more than Rs ,1000 crore.

Capex will be mostly funded through internally because we typically generate a profit in the range of Rs 900 crore to Rs 1,000 crore. And add back the depreciation and minus the dividend payout… So, we expect that capex will be funded through internal generation.

Net profit declined in Q4. What were the main factors for that?

Quarter-on-quarter (Q4 vs Q3) profit has come down slightly, but year on year (FY24 vs FY23), the profit has gone up. Last year it was Rs 790 crore and this year it is around Rs 1,280 crore. So there is an increase of around 300 crore year on year.

Q3 versus Q4, it (net profit) has come down slightly. The main reason for the reduction is one, we had reduced the prices of CNG. Secondly, the APM allocation has come down. And third, we have also launched certain schemes in the marketing segment. These three were the main points because of which Q3 versus Q4 profits have dipped slightly.

The availability of APM gas (part-subsidised by the government) was an issue in Q3 as well. Do you expect the issue to be resolved soon? Are you getting enough APM gas in Q1?

APM gas availability is still constrained. It is not fully resolved. We think APM gas allocation will be constrained in future as well because number of CGD companies are growing and the domestic gas production is not meeting up to the level at which the growth is happening. So, on a pro rata basis, the APM gas will come down further in future. That is our expectation.

APM gas availability is still constant in Q1. I don’t think it has improved. It is maintained at the same levels or maybe further declining a bit.

Has MGL’s dependency on spot gas increased as a result of the reduced APM gas availability?

We need not necessarily depend a lot on spot gas because there are two other avenues available to us. One is the high-pressure, high-temperature (HPHT) gas from Reliance and ONGC (Oil and Natural Gas Corporation) and the second is Henry Hub-, Brent- and JKM (Japan Korea Marker)-linked gas. We are availing that plus we are entering into term contracts depending on the requirement. These things are needed to give more stability to our input cost. On balancing and for having some flexibility around pricing arbitrage, we are keeping a very small volume open for spot gas. So spot gas is not prime to feed our sourcing portfolio.

What was the gas mix in Q4?

Total consumption in Q4 was about 3.6 MMSCMD (million standard cubic metres per day). Out of this, around 2.5 MMSCMD was APM gas and the balance was divided into term contracts and HPHT. Around 0.6 MMSCMD was HPHT, while 0.5 MMSCMD to 0.6 MMSCMD was term contracts and a very small quantity was spot gas for balancing, maybe around 0.05 MMSCMD or 0.1 MMSCMD.

CNG volumes have, in particular, been muted. What are your expectations for CNG volumes?

Year-on-year, we have had around 5.5 percent growth in total volumes. CNG volumes have not peaked to that level we wanted. But it takes time for vehicles to come on the road and start having some meaningful impact on volumes.

Moreover, we are creating more infrastructure in terms of CNG stations. This year, we have created 36 CNG stations and around 40 stations have been upgraded. For 2024-25, we are targeting to complete around 60 CNG stations by MGL and another 25-30 in Unison. So, collectively, we are planning around 80 CNG stations. That will definitely give a boost to CNG consumption. Last year we registered 5.5 percent growth in volumes and this year we expect to touch a target of 6 to 7 percent (total volume growth).

With the government saying that CGD companies have not passed on the benefits of gas reforms to the consumers, do we expect a further reduction in prices?

If you talk about MGL, we are selling the cheapest gas in the country, both in terms of CNG and PNG (piped natural gas), whereas the APM allocation is similar for all companies. So it is mainly to do with our operational efficiencies and other segments, how we price gas with respect to the alternate fuels, and so on and so forth. Having said that, we will definitely review the prices. There has to be a fine balance between the margins, the volume growth, the cost of alternate fuel as well as our procurement cost. All these things will be taken into account before taking any final decision. So, we cannot declare anything on this aspect.

Are you looking at new GAs in FY25? What are your expansion plans for this year?

GAs (geographical areas) take time but we have taken a few steps like we have put some equity in an electric vehicle company. We are in the final stages of closing a CBG (compressed biogas) plant with BMC (Brihanmumbai Municipal Corporation). We have put up a joint venture company with Baidyanath LNG for LNG (liquefied natural gas) retail outlets and Unison also needs to be further developed.

The exclusivity period of one of the GAs is over. Do you plan on extending it?

There are two types of exclusivity, one is infrastructure exclusivity and out of the six GAs we have, infrastructure exclusivity of one of the GAs has ended (after 25 years). That can be extended by another 10 years. We have applied (for an extension) to PNGRB (Petroleum and Natural Gas Regulatory Board) and we are hopeful that it will be resolved soon. We are meeting all the requirements to seek extension in our view.

Coming to marketing exclusivity, it is a matter that is under Delhi High Court. The matter is sub judice and I do not want to comment on it until the court gives a verdict on it.

What is your outlook on gas prices?

Last year, the prices have been quite good. And we think that going forward, they not be very volatile because I think the worst is over with respect to the Ukraine war, and things are also stable in Israel as of now. We never know if some geopolitical developments happen, but that is unlikely to have a major impact on gas prices because gas is a small portion of the whole basket.

Obviously, if certain things happen that directly impact gas prices, the prices will shoot up or shoot down. But most probably it is likely to continue in a fashion similar to what we have been seeing for the last five to six months.

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