Mahanagar Gas scouts for acquisitions as organic growth opportunities limited: MD

Ashu Shinghal, managing director, Mahanagar Gas

Starved for organic options, Mahanagar Gas Ltd (MGL), one of India’s oldest city-gas distribution (CGD) companies, is focusing on acquisitions to fuel its growth. The company, which announced its maiden acquisition this month, may unveil more such deals as it scouts for potential buys.

Ashu Shinghal, managing director of MGL, said the company will scout for more such acquisitions as prospects for organic expansion for city-gas distribution in India are already exhausted. “We keep scouting because that is one way by which you can grow the company.

The other way is organic growth, which is very difficult because all the big cities are already allocated and licensed by the regulator. The cities that are left do not have much potential. So we don't find that organic growth will be of big size in CGD sphere,” he said.

MGL will also explore equity opportunities in the electric mobility and hydrogen value chain space, he said.

Unison Enviro buy

On March 3, MGL announced the acquisition of the 100 percent stake in Unison Enviro at a value of Rs 531 crore from Ashoka Buildcon and an investment fund managed by Morgan Stanley India Infrastructure.

The Mumbai headquartered company has a dedicated team to identify potential acquisitions in the CGD space in India. “The Unison Enviro deal would not have happened without this team in place,” Shinghal said. The team was set up in 2021.

Unison Enviro holds three distribution licences combined for geographical areas (GA)s in Ratnagiri, Latur and Osmanabad in Maharashtra and Chitradurga and Devengere in Karnataka. “For 25 years we were with three GAs. Now suddenly in one go, we are getting three more,” Shinghal said. MGL currently operates three GAs— Mumbai, Thane and Raigarh.

Analysts tracking the company had earlier expressed concerns that the absence of new GAs was stunting the company’s growth. However, the latest deal has alleviated those concerns. “We view this as a significant move forward to address longstanding concerns on growth avenues for MGL beyond the Mumbai Metropolitan Region,” analysts with ICICI Securities wrote in a note released earlier this month.

Not an easy task

Shinghal is aware that inorganic growth and consolidation in India’s CGD space will prove to be an uphill task. “There are certain players who want to develop (the GA) a bit and then move out. There are players who want to continue for a longer period patiently. They want to wait for the GA to be developed. So right now, there are not many offers. But we don't know. Depending on so many other things, we may find a good opportunity,” he said.

Unison Enviro would complete the mandatory five-year lock-in period for its three GAs in September. Shinghal expects the share transfer to happen by the end of 2023. “The five-year lock-in period (for share transfer) will end in September. Post that, we expect one or two months for regulatory approvals, post which shares will be transferred and payments made,” he said.

Hydrogen, electric mobility plans

As part of its growth and diversification efforts, Shinghal said, the company is open to picking small equity exposures in companies operating in the electric mobility and green hydrogen space. He added the company will explore all options in the value chain, “From battery manufacturing to the charging station, to electric vehicle manufacturing, to electric vehicle infrastructure,” he said.

In the hydrogen space, Shinghal said green hydrogen, renewable energy, electrolysers, blending and ammonia are being explored. “We will see where we can have synergy with our existing capabilities as well as our balance sheet.” But Shinghal does not expect these to be big-ticket investments.