Mahanagar Gas' Margin Likely To Be Under Pressure In Fiscal 2025

Mahanagar Gas Ltd. plans to have an aggressive capital-expenditure strategy in the next two-three years, with an aim to invest Rs 800-850 crore in the current financial year and an additional Rs 200 crore in its recently acquired subsidiary, Unison Enviro. MGL expects margin to be slightly compressed in the fiscal on account of lower administered-pricing-mechanism gas allocation, Managing Director Ashu Shinghal told NDTV Profit.

Shinghal said the contraction in margin was on account of higher gas procurement costs and lower retail prices, especially in the compressed natural gas market due to price cuts. The city gas distributor saw a 411-basis-point sequential contraction in margins in the fourth quarter.

Ashu Shinghal (Source: Mahanagar Gas website)

Cost Of Procurement

Usually, the government allocates CGD companies like MGL with APM gas. The APM gas is supplied from the nomination fields of Oil India Ltd. and Oil & Natural Gas Corp. and are capped at a price of $6 per million British thermal unit.

The APM gas allocation has now reduced to 74% in the fourth quarter as compared to 78% earlier. This has led to the company buying gas in the spot market or on a contract basis.

However, the company expects spot gas prices to be stable and plans to utilise high-pressure, high-temperature gas, which is a higher-priced domestic gas.

Therefore, the lower APM allocation will be compensated by higher HPHT gas allocation from the KG basin. He also noted that the company has entered into a term contract for Henry Hub gas, according to Shinghal.

MGL expects a weighted average gas-procurement cost of $8.5–9 per mBtu.

Margins

The potential higher gas-procurement costs due to the lower APM gas allocation will lead to a shrink in per-unit margins.

The company expects per-unit margins to be in the range of Rs 11–13 per standard cubic metre of gas, lower than the Rs 13.96 per scm margin in the last fiscal, according to Shinghal.

Volumes

The company targets a 6–7% volume growth in the current fiscal. In the compressed natural gas segment, he said the growth would increase slightly to 5–6% in comparison to 4% in fiscal 2024. Shinghal said the industrial & commercial petroleum natural gas segment would drive growth in terms of volumes.

He underscored that there could be a marginal change in the volume mix. The CNG segment's contribution could fall from 70–71% to 68–69%, while the PNG I&C segment could account for 17–18% of the total sales volumes, compared to the 14–15% contribution currently.

Unison Enviro Volumes

With the acquisition Unison Enviro, MGL also gained three new geographical areas in its portfolio. Shinghal highlighted that the total volumes of these areas currently stand at 0.13 million scm per day, which is not very significant when compared to MGL's total volumes of around 3.78 million scm per day.

However, the company does expect a 10% uptick in Unison Enviro's volumes due to a lower base. Shinghal said the 0.13 million scm per day of volumes have the potential to grow to 1.2–1.3 million scm per day in the next five–six years.

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