Mahanagar Gas Q1 FY25 Analysis: Key takeaways!!
Mahanagar Gas Limited (MGL) demonstrated robust performance in Q1 FY2025, with overall gas sales volume increasing by 13.1% year-over-year to 3.858 mmscmd. The company’s core CNG segment led growth, rising 11.7% YoY to 2.772 mmscmd. Domestic PNG and industrial/commercial segments also saw healthy increases of 10.4% and 23.8% respectively. This strong volume growth translated to improved financial performance, with EBITDA rising to Rs. 418 crores and net profit increasing 7.4% quarter-on-quarter to Rs. 285 crores.
Strategic Initiatives:
-
Accelerated CNG station expansion: MGL is targeting to add over 50 CNG stations in FY2025, more than doubling its historical annual additions. This aggressive expansion aims to capitalize on rising CNG vehicle adoption.
-
Diversification of gas sourcing: The company has signed multiple term contracts for gas supply, including Henry Hub-linked deals, to manage costs as APM gas allocation declines.
-
Entry into LNG retail: MGL has entered a joint venture to expand its LNG station network, complementing its existing CNG infrastructure.
-
Focus on Unison Enviro subsidiary: Management expects Unison to deliver 15%+ annual volume growth over the next few years as infrastructure expands in its newer geographical areas.
Trends and Themes:
- Accelerating CNG vehicle adoption, especially in commercial segments
- Shift towards larger CNG vehicles (medium & heavy commercial) from smaller ones
- Growing interest in CNG two-wheelers with recent launches by major OEMs
- Gradual reduction in APM gas allocation, necessitating diversification of gas sourcing
Industry Tailwinds:
- Government push for natural gas adoption in transportation sector
- Favorable economics of CNG vs. petrol/diesel, driving conversions
- Expansion of CNG infrastructure improving convenience for users
- Introduction of factory-fitted CNG models by major automakers
Industry Headwinds:
- Declining APM gas allocation, potentially pressuring margins
- Rising competition from electric vehicles, especially in public transportation
- Volatility in global LNG prices impacting sourcing costs
- Potential regulatory changes around marketing exclusivity in CGD areas
Analyst Concerns and Management Response:
-
Concern: Sustainability of high volume growth
Response: Management maintains 6-7% long-term volume growth guidance, viewing recent quarters as above-trend -
Concern: Margin pressure from lower APM allocation
Response: Diversifying gas sourcing through term contracts and optimizing gas cost through blending -
Concern: Competition from EVs in bus segment
Response: Highlighting lower total cost of ownership for CNG buses; noting supply constraints in EV buses
Competitive Landscape:
MGL enjoys a strong position in its core Mumbai market. However, the potential opening up of marketing exclusivity could introduce competition. The company is working to strengthen its position through aggressive infrastructure expansion and customer-focused initiatives.
Guidance and Outlook:
- Maintaining 6-7% annual volume growth guidance for core MGL business
- Expecting 15%+ annual growth for Unison Enviro subsidiary
- Targeting EBITDA of Rs. 10-12 per SCM
Capital Allocation Strategy:
MGL is focusing on infrastructure expansion, particularly CNG stations. The company incurred Rs. 250 crores of CAPEX in Q1 FY2025 and plans to maintain an aggressive expansion pace.
Opportunities & Risks:
Opportunities:
- Expansion into new geographical areas through Unison Enviro
- Potential in CNG two-wheeler segment
- Growing adoption of CNG in medium and heavy commercial vehicles
Risks:
- Further reduction in APM gas allocation
- Increased competition if marketing exclusivity is removed
- Faster-than-expected EV adoption, especially in public transport
Regulatory Environment:
The regulatory landscape remains uncertain, with ongoing deliberations on marketing exclusivity and infrastructure exclusivity. MGL has sought extensions for infrastructure exclusivity and is awaiting regulatory decisions.
Customer Sentiment:
Customer sentiment towards CNG remains positive, driven by cost advantages and expanding infrastructure. The introduction of CNG two-wheelers could further improve sentiment among personal vehicle users.
Top 3 Takeaways:
- Strong volume growth of 13.1% YoY, led by CNG segment, driving financial performance
- Aggressive CNG station expansion plans to capitalize on rising adoption
- Focus on gas sourcing diversification to manage costs amid declining APM allocation
Subscribe To Our Free Newsletter |