'Good time to go public': IPO-bound Mahanagar Gas

Mahanagar Gas, which is slated to come out with an initial public offer (IPO) shortly, is well prepared for it, says the company MD Rajeev Mathur.In an interview with CNBC-TV18, Mathur said the company in good financial state and says volume growth will likely pick up, assuming crude oil stabilises or rises from hereon. Mumbai-based Mahanagar Gas, which has a monopoly for gas distribution for cars, domestic and industrial gases in the city, is a joint venture between state-owned GAIL and Royal Dutch Shell.Mathur said the company's operating margins for the company suffered in FY16 thanks to volatility in crude prices and said they should expand going forward. 

The company has around Rs 500-600 crore cash on its books, out of which the company has reserved Rs 250 crore to fund capex requirements in FY17.Below is the verbatim transcript of Rajeev Mathur's interview with Navin Shetty on CNBC-TV18. Q: Your promoters are exiting a part of their stakes, so what is the reason for that, can you throw some colour on that? A: When this company was formed in a year 1995, there was a stipulation by the foreign investment promotion board (FIPB) saying that we have to necessarily go public, 20 percent. We were getting a rollover from time-to-time through the application that we made with the government that it was probably the right opportune time for us to go public and they were giving us the exemptions. Now that exemption is no longer available and as a result we need to go public. Therefore, we went to FIPB, got a clearance. Q: On your fundamental side, we have seen a significant drop in your net profit margins from 21-22 levels to around 14-15 levels, so if you could just throw some colour, when do we see some kind of a sustainability or maybe a stability in the margins and what will be those levels? A: As you have noticed in the last two years, the crude prices have gone down. We are in competition with the petrol, diesel etc. Prices of which have also fallen quite considerably. As a result we had to condition up pricing of our natural gas, compressed natural gas (CNG) as well as Piped Natural Gas (PNG). That got reflected in our margins. Going forward, as we expect the prices of crude to be where they are, we would expect the pricing in margins to follow that. Q: It is a pure secondary issue, there is no primary money that will be coming to the company, so how will you be funding your capex going ahead and what is the capex that you might have earmarked maybe for the next one-two years? A: On an average, our capex has been about Rs 200 crore in the past. This year we are also investing in Raigarh, so our capex is likely to be about Rs 250 crore. We have enough cash and reserves, which are available on an annual basis which will fund our capex going forward. Q: How much is the cash in your books currently as of March 2016? A: Between Rs 500 crore and Rs 600 crore. Q: Talking on the volume front, can you throw some colour on what will be the volumes on both CNG as well as PNG, going ahead how do you see the growth in volumes? A: Our past trend has been that in the last five years, the growth has been between 7 and 8 percent. In the last two years because of lot of volatility in the crude market and the fuel market, the growth was slightly subdued but going forward, as the trend suggests and the prices of crude remain where they are today or probably look up, we will a similar trend happening in terms of growth in the next couple of years. Q: A number that you can throw in terms? A: I would suggest that the past trend should be taken as cue for the future. Q: One of the important things that we would like to ask you is in terms of going ahead you already spoke about your CAPEX but on the gas prices in terms of the regulator are there any concerns with the regulator as of now in terms of the piped natural gas (PNG) regulator? A: There are no concerns as far as the pricing is concerned. Q: Not in terms of the pricing, in terms of any litigation with the regulator for the gas regulators? A: A healthy difference of opinion is always welcomed and that is where we are with our regulator. However, on the matter of policy and on the matter of growth etc we are all on the same page. Q: Also wanted to talk to you about the pricing. Your peer group Indraprastha Gas (IGL) has priced it on if I were to talk about the forward year FY17 multiple it has priced it around Rs 14 while you are also closed to almost the same number. Do you think that will be an issue going head especially at a time when we are seeing a lot of volatility in the market? A: All our financial numbers have been superior to our peers. If you go through our red herring prospectus (RHP) you will see all those numbers are superior to the peers. We believe we can sustain with the kind of the pricing that we have offered in the market. Q: On talking about the strategy when it comes to growth. You have a kind of a monopoly in the Mumbai market and the adjoining areas. What will be the strategy going ahead in terms growth may be will you be looking for any kind of a geographical expansion going ahead other than Mumbai, Thane and the Raigad districts? A: Our concentration today is Mumbai, Raigad and Thane; together they constitute a huge market much more than any other geographical areas that are there. There is a huge potential upside available here. We will look at concentrating in these markets. From time to time when the PNG comes out with newer bidding rounds we may look at bidding in another cities. As of now concentration is in Mumbai and developing the business here and spreading the PNG and the NCG network. Q: Any other cities that you have come up may be in other parts of the country? A: It is too early for me to say anything on that