This article first appeared on GuruFocus .
Release Date: November 04, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Overall sales volume increased 6.49% YoY to 4.89 MMSCMD, with CNG and domestic PNG volumes growing 9.14% and 9.84% respectively.
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Mahanagar Gas Ltd ( BOM:539957 ) added 70,501 domestic PNG connections, 9 CNG stations, and 248 industrial/commercial customers during the quarter, expanding its infrastructure and customer base.
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The company has secured new term gas contracts for about 40,000 MMBtu, reducing dependence on volatile spot LNG and supporting cost management.
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The new HPHT allocation formula is expected to increase Mahanagar Gas Ltd ( BOM:539957 )'s HPHT allocation from 5,000-6,000 MMBtu/day to 16,000-18,000 MMBtu/day once fully implemented, improving gas sourcing.
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Mahanagar Gas Ltd ( BOM:539957 ) maintains a strong balance sheet with no debt and surplus cash of about INR1,000 crore, providing financial flexibility for its capex plans.
Negative Points
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EBITDA from operations declined to INR287 crore in Q2 FY27 from INR343 crore in the previous quarter, and net profit fell to INR137 crore from INR194 crore.
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Industrial and commercial sales volume decreased 7.48% YoY due to supply curtailments and high Brent-linked prices, impacting overall volume growth.
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Spot LNG prices remain elevated at $20-23 per MMBtu, and geopolitical tensions in West Asia continue to pose risks to gas availability and pricing.
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Operating expenses were higher during the quarter, including a one-time INR10-12 crore impact from long-term pay correction and salary revisions.
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Free cash flow is expected to be negative by INR200-300 crore in FY27 and FY28 due to high capex, which may require funding from cash reserves or customer deposits.
Q & A Highlights
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Warning! GuruFocus has detected 5 Warning Signs with BOM:539957.
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Q: Can you provide an update on the new HPHT gas allocation formula and how it will impact MGL's volumes and costs going forward? A: The new formula allocates HPHT gas based on a company's prior consumption for priority segments (CNG and domestic PNG) rather than equally among all bidding entities. This change is being phased in over the next seven to eight months. Under the full new formula, MGL expects its allocation to increase roughly three and a half times, from the previous 5,000-6,000 MMBtu/day to around 16,000-18,000 MMBtu/day, assuming similar HPHT flow through IGX. This will help manage costs and reduce reliance on spot gas. (Management)
Q: With spot LNG prices rising sharply in Q3, what is your strategy to protect margins? A: MGL aims to minimize spot gas purchases. The company has tied up new term gas contracts, with a formula tweaked for the short-term turmoil, matching long-term contracts in the range of around 40,000 MMBtu. The phased implementation of the new HPHT allocation formula will also increase domestic gas availability. While some cost increase is expected, the focus is on fine-tuning the gas sourcing mix to keep spot dependency to a minimum. (Management)
Q: What is the outlook for volume growth for FY27 and FY28, and what is the current status of the industrial and commercial segment? A: At the company level, volume growth was around 6.75% in H1 FY27. CNG and domestic PNG volumes grew by nearly 9.5%, and small commercial by 12%. The overall growth was dampened by a 7.48% decline in industrial volumes due to supply curtailment and high Brent-linked prices. Once gas availability and pricing normalize, MGL expects overall volume growth to be in the range of 8% to 9% for both FY27 and FY28. (Management)
Q: What is the current gas sourcing mix for CNG, and how much of it is spot LNG? A: For CNG volumes, approximately 60% is domestically produced gas (split roughly 50/50 between APM and NWG) and 40% is term gas. Spot LNG, including HPHT through IGX, was around 11% of CNG volumes in Q2. Pure spot RLNG was only about 4% of CNG volumes, or roughly 2.5% of total company volumes. The blended price for spot LNG in the quarter was in the range of $20 to $23 per MMBtu. (Management)
Q: Can you provide an update on the CNG vehicle incentivization scheme and the discount offered versus petrol and diesel? A: MGL has continued its marketing scheme for large commercial vehicles, with commitments for over 800 vehicles, of which about 110 have been delivered. The expense for this was around INR3.5 crore to INR4 crore in the quarter. The scheme now focuses on larger vehicles where CNG penetration is lower, as smaller LCVs are already selling well on CNG. Currently, CNG is offered at a ~45% discount to petrol and a 10-11% discount to diesel. (Management)
Q: What is the outlook for EBITDA margins, and how much of a CNG price hike is needed to achieve the 7 rupees per SCM guidance? A: The current quarter's unit EBITDA margin was around INR6.77 per SCM, slightly below the INR7 guidance. A price hike of INR1 to INR1.5 per SCM, if other factors remain constant, would be sufficient to achieve the INR7 per SCM target. However, given the volatile environment, providing a specific EBITDA guidance for FY27 and FY28 is difficult. The company is evaluating the situation regularly and aims to maintain reasonable profitability without adversely impacting CNG adoption. (Management)
Q: What was the reason for the higher operating expenses in the quarter? A: Operating expenses were higher due to a few factors. Some expenses are directly linked to higher volumes, such as power and fuel, LCV transportation, and dispensing charges. Additionally, there was a one-time impact of around INR10 to INR12 crore in the quarter related to a long-term pay correction for employees, stemming from salary revisions and interest rate changes. This one-time cost is not expected to be as high in subsequent quarters. (Management)
Q: Can you provide an update on the CapEx guidance and how the negative free cash flow will be funded? A: The CapEx guidance for the year remains INR1,500 crore to INR1,800 crore, with the first half typically being lower due to monsoon-related permission delays. The company expects free cash flow to be negative by INR200-300 crore for FY27 and FY28. This will be funded through a combination of customer deposits and existing cash surpluses of around INR1,000 crore, along with operating cash inflows of INR1,000-1,200 crore. The company does not foresee the need to raise debt. (Management)
Q: What is the pricing strategy for industrial and commercial customers, and how are realizations trending? A: The pricing strategy for 100% of I&C customers is based on alternative fuels, with monthly price resets. For commercial customers, prices are linked to 19 kg LPG cylinder prices, which increased by over 25% in Q2 compared to Q1, leading to a corresponding increase in realizations. For industrial customers, prices are linked to FO and LDO, which saw a 6% to 15% decrease. Despite the mixed trends, margins in the segment are expected to remain slightly better or equal to the previous quarter. (Management)
Q: What is the status of the penalty related to the non-achievement of Minimum Work Programme (MWP) targets for Unison Enviro? A: When the GA authorizations were transferred from Unison Enviro to MGL, PNGRB reviewed the MWP shortfall. The Joint Venture Agreement with the erstwhile promoters of Unison Enviro covered the recovery of this shortfall. A portion was recovered from the promoters, and a small nominal amount was borne by the company from Unison Enviro's own account, not from the price committed to the promoters. (Management)
Q: Is there any update on the government potentially revising the NWG allocation policy to
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
