City gas distribution (CGD) company Mahanagar Gas Limited (MGL) expects to spend about Rs 950 crore in FY25, including capital expenditure planned for Unison Enviro Private Limited (UEPL), which it made a wholly owned subsidiary last month, allowing MGL to expand to newer geographical areas in Maharashtra and Karnataka.
The company looks to spend more to enhance infrastructure by setting up around 50 compressed natural gas (CNG) pumps in FY25, apart from clean energy initiatives.
"We are planning a CBG (Compressed Biogas) plant with BMC (Brihanmumbai Municipal Corporation) and we have set up a joint venture company with Baidyanath LNG for LNG (liquefied natural gas) stations that again will take up some of the capex. We have acquired some equity in an electric vehicle company, there we are using our cash. But the infrastructure, yes, we are totally focused on that," managing director and chief executive officer Ashu Shinghal told Moneycontrol in an interview on March 26.
MGL spent Rs 800 crore in FY24 and added around 50 pumps.
The FY25 capex, including Rs 150 crore for UEPL, will be funded through internal accruals and generation, according to Shinghal.
In January, the company reported a consolidated net profit of Rs 317.18 crore for the December 2023 quarter, 84 percent higher than the Rs 172.07 crore recorded in the year-ago period amid lower cost of gas.
Its EBITDA margin stood at 30.5 percent in the reporting quarter versus 16.2 percent a year earlier. EBITDA is earnings before interest, taxes, depreciation and amortisation.
Shinghal touted the company's operational efficiency and structured term contracts as among the key reasons for comfortable margins, giving room for slashing CNG prices.
PNGRB scrutiny
While MGL has enjoyed the cost benefit accruing from lower price of gas, it has also attracted scrutiny. Taking note of the rising profits of CGD companies, the Petroleum and Natural Gas Regulatory Board (PNGRB) has flagged concerns that the savings are not being passed on to customers.
The downstream regulator expects the companies to invest more in the capex while keeping the profit margin between 12 percent and 15 percent. In a recent interview to CNBC-TV18, PNGRB board member Gajendra Singh said that the companies are behind on minimum work programme (MWP) targets, saying that PNG (piped natural gas) goals are not being met.
However, as per MGL data, the company had completed 24,35,283 domestic PNG connections in geographical areas including Mumbai and Greater Mumbai (GA-1), Thane Urban and adjoining municipalities (GA-2), and Raigad district (GA-3) as of February 2024. This is ahead of the regulator's target of 6,57,476 connections.
"We have done multiple times more than what the minimum work programme was committed," added Shinghal.
Infrastructure exclusivity
CGD companies have a near-monopoly in areas they operate, but things are changing. PNGRB on March 4 put out a public notice stating that MGL's infrastructure exclusivity granted to geographical areas in Mumbai and Greater Mumbai has expired. The stated exclusivity was to originally end in April 2021.
This would mean that any other entity would have the opportunity to lay, expand and operate a natural gas distribution network within the same geographic area.
According to Business Standard, MGL challenged the notice in court while expecting to settle the matter amicably.
The company is in discussion with PNGRB and is expecting to have its infrastructure exclusivity extended in Mumbai for another 10 years. According to Shinghal, the court has set a hearing towards the end of April, but he is hopeful of a favourable result before that, adding that it would be up to the company's board to take a final call.
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