Mahanagar Gas Ltd (BOM:539957) (Q1 2027) Earnings Call Highlights: Record DPNG Conversions and ...

Q & A Highlights

Q: What was the gas sourcing mix for the quarter, and how are supply availability and costs looking for Q2 given the West Asia conflict? A: Rajesh Patel, CFO, detailed the sourcing mix: roughly 30% from APM, 21%-22% from NWG and pooled gas, 14%-15% from HPHT, and 21%-22% from Henry Hub contracts, with the remainder from small Brent-linked and spot purchases. Spot prices touched almost $20 per MMBtu, while pooled gas was in the $12.5-$13 range and Brent-linked around $13-$14. He noted that the pooled gas mechanism was discontinued in early July, and with renewed supply disruptions, the situation is "slightly worse" than Q1, making margin guidance very difficult for the near term.

Q: What was the price increase and realization for the industrial and commercial (I&C) segment, and can these higher margins be maintained? A: CFO Rajesh Patel explained that I&C pricing is linked to alternate fuels (bulk LPG for commercial, FO/LDO for industrial). Realizations increased by INR27 to INR32 per cubic meter sequentially (a 70%-80% increase), driven by Brent rising from ~$62-$63 to $95-$100. He cautioned that this quarter was "slightly abnormal" and that margins will fluctuate with fuel prices. The company's long-term endeavor is to maintain an EBITDA margin in the range of INR8 to INR9 per SCM.

Q: What is the volume growth guidance for CNG and overall, and what are the key drivers? A: CFO Rajesh Patel stated that assuming prices normalize, CNG volume growth should be in the range of 8%-9%. He highlighted that there is no dearth of demand, but the company's ability to supply is constrained by gas curtailment and force majeure on RLNG supplies. He noted strong growth in GA-2 (over 2.1 mmscmd) and Unison (growing over 30% Y-o-Y to 0.322 mmscmd), with the cumulative vehicle base and new station additions being the primary drivers rather than quarterly additions.

Q: With the increased CapEx guidance of INR1,500-1,800 crores for FY27, will the company need to raise debt, and will this impact the dividend payout? A: CFO Rajesh Patel confirmed the elevated CapEx guidance, noting INR350 crores was already spent in Q1. He stated the company is prepared to raise debt if needed, given its zero-debt balance sheet, but emphasized that dividend outflow will not be impacted and will be maintained or gradually increased. He framed the higher spending as "preponing" CapEx to seize the current opportunity from the PNG Drive 2.0 initiative, which should reduce future spending needs.

Q: What is the status of the company's non-CGD initiatives (LNG, EV, batteries, CBG)? A: CFO Rajesh Patel provided updates: Long-haul LNG has two commissioned stations with volumes around 5 tonnes/day, just breaking even. The International Battery Company project is on hold due to falling revenue realizations and capital constraints from the partner. The EV 3-wheeler business is still a start-up and has not broken even. The compressed biogas (CBG) plant with MCGM is progressing, with land allocated for a 350-tonne municipal solid waste facility. He clarified that these are small investments aimed at understanding the segments for the long term, with no sizable management time or money expected in the next 3-5 years.

Q: What is the potential for domestic PNG (DPNG) volume growth this year and the outlook for customer additions? A: CFO Rajesh Patel stated that the company connected a record 97,461 customers in Q1 and aims to connect 8-10 lakh customers in FY27, subject to manpower and material availability. He noted that with a potential of 3.8-4 million households and 2.3 million currently consuming, the push from the government to convert LPG users could drive DPNG volume growth to 7%-8% this year, with an estimated addition of 0.06-0.07 mmscmd on the current 0.65 mmscmd base.

Q: Given the recent CNG price hikes, will there be a rollback if LNG prices normalize, and how does the company view the competitive position versus petrol/diesel? A: CFO Rajesh Patel explained that the company maintains a competitive spread of roughly 40%-45% versus petrol and around 12% versus diesel. He stated that if gas costs increase temporarily, they may not change prices frequently to avoid volatility that deters fleet adoption. However, if petrol/diesel prices rise permanently, they would look to recover gas costs. He indicated that the INR5/kg increase taken since February is now available for the full quarter, providing a positive offset to higher input costs.

Q: What is the volume contribution from CNG buses, and what is the threat from EV adoption in this segment? A: MD Praveer Srivastava stated there are roughly 6,000 buses (STU and private) contributing about 4%-5% of total CNG volume. CFO Rajesh Patel added that while STUs may adopt EV buses due to available funding, private operators face high capital costs and difficult financing, limiting EV penetration. The company has launched a "fleet program" targeting this segment to mitigate the EV threat, with several MOUs signed and vehicles expected on road in the coming months.

Q: What is the company's strategy for growth, including bidding for new GAs or acquisitions? A: CFO Rajesh Patel stated that the existing GAs still have significant potential, with UEPL's SBUs having a potential of almost 1.2 mmscmd versus current volumes of just over 0.3 mmscmd. He noted that most geographies have already been bid out by PNGRB, so organic bidding is limited. However, the company is open to inorganic growth through acquisitions, particularly as new entrants may face gas management issues with declining APM allocations.

Q: Why was the industrial realization increase lower than commercial, and how does the pricing mechanism work? A: CFO Rajesh Patel explained that pricing is linked to different alternate fuels: commercial customers switch from bulk LPG (which saw higher price increases), while industrial customers switch from LSHS/FO/LDO (which saw lower increases). Additionally, large industrial customers receive discounts to recover capital costs, and new customers in Raigar

For the complete transcript of the earnings call, please refer to the full earnings call transcript .