MC Interview|No price revision for CNG or PNG in FY24, says MGL’s Ashu Shinghal

Shinghal said price revision is not on the table as of now as procurement costs have mostly stabilised.

Mahanagar Gas Limited (MGL) is not looking at any further revision in the prices of compressed natural gas (CNG) or piped natural gas (PNG) in the current financial year, said managing director Ashu Shinghal in an interview with Moneycontrol.

Shinghal said price revision is not on the table as of now as procurement costs have mostly stabilised. MGL had reduced prices of CNG and PNG in April 2023 by Rs 8 per kg and Rs 5 per SCM (standard cubic metre), respectively, while in October, it had cut prices by Rs 3 / kg and Rs 2 / SCM.

The state-run city gas distribution company’s net profit more than doubled in the second quarter of the current financial year to Rs 339 crore, even as the company recorded muted volumes.

Shinghal argues that he expects volumes to increase by 7-8 percent in the next two quarters on account of the convergence schemes announced by the company such as incentivising purchase CNG vehicles and earlier price reductions. In Q2, MGL posted 3 percent volume growth.

Edited excerpts:

Can we expect another cut in prices of CNG and PNG by Mahanagar Gas this financial year?

There's hardly any scope for that because the cost of gas per the APM (administered price mechanism) and also of HPHT (high pressure, high tension) gas, which is what impacts PNG and CNG prices, have stabilised. So unless something drastic happens, we don't think much price revision is expected.

MGL’s profit doubled in Q2. What were the reasons?

The costs were much lower in the first and second quarter. Government policies supported the supply of APM and HPHT gas, plus the prices of LNG were also subdued from this financial year. Those were the main reasons for clocking better margins and profits this year compared to last year.

Last year was quite unusual, because of the high cost of gas, because of which we had to increase our prices. However, after the reduction in APM and HPHT prices, we have reduced CNG prices. Also, we have tweaked the portfolio of gases we are purchasing for the I&C (industrial and commercial) segment. Earlier, we had more of spot in our kitty, but that’s been reduced. Now we have more term contracts of APM and HPHT.

What is the ratio of APM and non-APM gas for MGL?

Total consumption of MGL is around 3.6 mmscmd (million metric standard cubic metres per day), of which around 2.6 to 2.7 mmscmd is APM and the balance is HPHT and term contracts.

Do you expect strong profits going forward, considering prices have stabilised now?

It depends on what the gas prices are in the industrial and commercial segments, as well as that of PNG, CNG. Prices are stable now, but the number of CGD (city gas distribution) companies is increasing. So, allocation of APM gas may reduce somewhat in the coming years. But having said that, we expect to be able to comfortably manage EBITDA margins of Rs 10 to Rs 12 per SCM.

Your volume growth in the quarter has been lower than the expected 6 to 7 percent. Why so?

This volume was slightly lower than expected, but we have launched schemes for convergence, and incentivised the purchase of CNG vehicles, or even retrofitting commercial vehicles with CNG kits.

Some schemes have been launched along with OEMs such as Maruti, Tata, and Ashok Leyland for incentivising  for convergence. We expect that in Q3 and Q4 we will see the impact of these schemes, which were launched in September 2023. Further, we have reduced prices twice. Once in April 2023 by Rs 8 per kg and Rs 5 per SCM, for CNG and PNG, respectively. And once in October, by Rs 3 / kg and Rs 2 / SCM. So, we expect the shortfall of Q1-Q2 will be compensated in the next two quarters.

What is the volume growth expectation for Q3 and Q4?

Right now, we have a growth of 3.5 percent year-on-year (YoY). If we are to stay on course for 6 percent YoY growth, we can expect 7 to 8 percent growth in the next two quarters.

Which segment do you see growing the most?

CNG, and the industrial sector. Already, we have seen an increase of around 50,000 SCMD in the industrial segment. That trend is expected to continue for the next two quarters.

Also we are targeting the commercial segment for getting their volumes as well. We are coordinating with BMC (Bombay Municipal Corporation) and the fire department to see how we can reach more households and businesses. the compliances is increased in respect to the fire services, and we get more commercial volumes as well.

With winters approaching in Europe, what is your outlook on gas prices?

It’s very difficult to give any prediction on gas prices, because winter was very subdued last year. Every winter, spot prices go up slightly. But it all depends on how the winter pans out, and the impact of the Ukraine war. Europe is better prepared this year compared to the last year. Hopefully the price hike will not be as much as last year.

The spot price of natural gas is hovering around $17 per MMBtu (metric million British thermal unit). Winter has already set in, so it should remain in the range $15 to $20. But we cannot say for sure because the market is very sensitive and geopolitical factors can trigger volatility.

With the ongoing conflict in the middle east, do you expect turmoil in the global gas market?

If big players like Qatar or Saudi enter the war, then things can go out of hand. But that's not very likely.

Do you think electric vehicles (EVs) could impact MGL’s business?

They are obviously our competitors, especially in the three-wheeler space. In India, 90 percent of EVs are two- and three-wheelers, and of that, the majority are two wheelers. Two wheelers don't use CNG, so they don’t impact us.

The three-wheeler market can get impacted over the years as and when more three-wheelers are converted into EVs, but we expect the market to more than compensate by the additional volumes in commercial vehicles. Also, CGD infrastructure development is picking up pace. So we expect the commercial segment to offset the impact of EV three-wheelers.

What are the challenges in increasing natural gas’ share in the energy mix to 15 percent, from the current 6 percent?

A big challenge is that gas is not being used in the power sector. If we go sector by sector, volumes will pick up in fertilisers because more fertiliser plants are getting connected to the gas grid. Also, more refineries are expected to be connected to the national gas grid.

CGDs are also a big player, which can drive volumes. But then, about 50 percent of our gas is imported. Therefore, it's not going to be easy to go up to 15 percent, especially since our energy consumption is also going up.

If the share of gas in the energy basket has to increase substantially, new policy initiatives are required.