Mahanagar Gas, a major player in the CNG and piped natural gas segments, has major growth plans taking the total number of gas stations to over 400 in the current fiscal year, Managing Director Ashu Shinghal told businessline in an interview.
Over 70 per cent of its revenue comes from the CNG segment, where it sees considerable potential given the thrust on non-polluting fuels.
The company has applied for extension of infrastructure exclusivity in Geographical Area 1 (GA1), that is greater Mumbai, which expired in 2020. While a significant portion of growth is expected to come from GA3, that is Raigad, it is also expecting other GAs to grow, as its boosts network infrastructure.
A good part of your growth will be from Geographical Area 3 (GA3) in the future. Could you provide the details of your expansion and growth plans?
This is partially correct because growth in GA 3 is on a low base. If you talk about total volumes, the sales volume in GA 3 is comparatively lower as compared to GA 1 and GA 2. In absolute numbers GA 2 will be also growing at a faster pace in terms of absolute numbers. We are also creating a lot of infrastructure. Last year we added 36 CNG stations.
This year we plan to add 45-50 stations. Another 30 stations we are planning for Unison Enviro (UEPL), which we acquired. So effectively, on a total head count of around 310 stations, we will be adding another 80 stations. So, we will have more than 400 stations this year, which is a substantial addition in a single year.
Coming to other infrastructure, we have provided 3.3 lakh domestic connections last year, the highest by any city gas distribution (CGD) entity in the country. On both industrial and commercial, we have clocked around 12 per cent growth. So that is a number which we think will keep on this year. Also, we expect more than 10 per cent growth in industrial and commercial.
The CNG segment was positive in Q1 of this year compared to Q4 of last year, we have seen growth of 3-4 per cent. The profitability is okay, the EBITDA margins are comfortable, the prices of CNG and PNG are lowest in the country by MGL.
Any details on specific projects where you are involved?
We are planning to put up a CBG (compressed bio-gas) station with BMC (Brihanmumbai Municipal Corporation). We have a joint venture company for LNG retail outlets with Baidyanath LNG. Also, we have an equity investment in electric vehicle manufacturing company 3ev.
Further, we are exploring some more opportunities, which we will disclose as and when they ripen. Our focus is to expand on the core business, which is CNG, PNG and industrial and commercial segments. We are diversifying and taking environmentally friendly steps like CBG.
In GA1, the infrastructure exclusivity has expired. How will that affect you and what steps are you taking?
We have applied to the regulator for extending the infrastructure exclusivity for another ten years. And there’s precedence in Gujarat Gas which had their infrastructure exclusivity extended for ten years, and now they have again applied for another ten years extension.
If we see globally in case of infrastructure exclusivity, there is no case where, in a single geographical area, there are two entities building the infrastructure. So, it is always that one company will build the infrastructure and marketing exclusivity means that others can use a part of that infrastructure and pay the tariff for that use.
So, our interests are protected even if the marketing exclusivity ends because they will be paying tariff for the usage as well as they have to be competitive. We also get an opportunity to use other companies’ geographical areas for marketing our gas.
You get most of your revenues from CNG. What are your plans with respect to piped natural gas because you have leadership in that segment in Maharashtra?
Not only in Maharashtra, but we are also highest in the country in terms of number of connections done by any CGD entities in domestic PNG segment. It’s a good segment for us and we are expanding.
We also want to bring piped gas to maximum homes wherever it is feasible. The domestic piped gas segment customer is sticky, and we value it. We also supply PNG to industrial and commercial establishments such as hotels, restaurants, and other industries.
Industrial and commercial growth is 12 per cent and this year we expect more than 10 per cent growth in this. In the domestic PNG segment we see a growth of around 5 per cent. The per capita consumption is very low compared to the total volumes in PNG. It is a social responsibility because if we spend around ₹25,000 per connection to a household we are allowed as per the regulation to charge only ₹5000. That also is refundable amount.
So, the focus will be on CNG?
CNG is a market with more potential because if you see the number of vehicles and the penetration of CNG vehicles penetration in Mumbai and around is maybe around 25 to 30 per cent.
And PNG penetration is more in terms of numbers, maybe it could be around 60 per cent. The main point is that our 70 per cent of our sales is from CNG so that is where we will see the growth.
How do you see the pricing – both in terms of procurements and selling price?
We are selling CNG around Rs 75 per kg and PNG at ₹48 per standard cubic metre, both cheapest in the country. Now, the dynamics are like this - we get some domestic gas, and we import LNG. We optimize on the procurement cost so that customers are not burdened.
We have taken several steps in last few years to make sure that the procurement cost is at optimal level. The flip side is that domestic gas is reducing and the consumption by CGD entities is increasing as more infrastructure is getting created. So that means the pro rata reduction is there in the domestic gas allocation to each CGD entity and therefore our procurement cost goes up because the other gas which is available is costlier than the domestic APM gas which is allocated to the CGD entities.
So as and when we find that there is some increase in domestic gas prices or in the procurement cost of LNG, we have to pass on certain portion of it to the customer. But we always try to make it less variable by absorbing some of it.