Mahanagar Gas: Positive outlook | The Financial Express

We recently had a meeting with the senior management of Mahanagar Gas (MGL) last week, to gain insights into their recent developments and future prospects. Here are the key takeaways:

MGL implemented a significant reduction of Rs 8/kg in CNG prices at the beginning of Q1FY24. However, during Q1, the volumes remained steady in the range of 3.45-3.65mmscmd. This could be attributed to the summer vacations, which affected bus volumes. Nevertheless, we expect Q2 to demonstrate stronger momentum, driven by the reopening of schools, the arrival of monsoons (leading to increased time spent on the road), and the higher conversions resulting from improved pricing. These factors may to contribute to robust growth in the upcoming quarter.

In addition to the strong 40-50% price discount to petrol and diesel driving CNG demand, pricing stability over the next 2 years may drive a steady demand momentum. With greater development of Raigadh (Maharashtra) and more aggressive progress in GA-2 (Thane), we believe there is an upside risk to our estimate of 6% volume growth over the next 3-5 years. Also, commercial vehicle demand is likely to pick up, with more OEMs, contiguous development around MMR proving refueling options and favourable costs driving demand over the next 3-5 years. Therefore, quarterly run rate of 2,500 CVs can jump to 3,500 by the end of FY24E.

The Unison Enviro (UEPL) acquisition is likely to complete by Dec’23 as the transfer lock-in period of 5 years for 2 of the 3 areas of Unison will get over by Sep’23. UEPL reported volumes of 0.1mmcmd for FY23, which should grow to 0.7mmscmd by FY28. MGL now has 89% of priority sector gas coming via domestic gas, premium domestic gas, medium-term LNG of 0.4mmscmd and 0.1mmscmd from RIL. This leaves only 0.1mmscmd required via spot LNG, but interestingly, the medium-term LNG contract has a relatively lower take or Pay (ToP) so MGL can reduce it and take more spot LNG which can help margins. Even with a price reduction of Rs 5/ltr in petrol and diesel, CNG discount should sustain at 40%, which ensures strong conversions.