Mahanagar Gas Ltd - a natural monopoly

(AKGupta) #223

As far as I know, Pune CGD is with MNGL in which IGL has a stake. Can you cite any link in which it says Gujarat Gas is developing Pune?

Well if what you say is true, there aren’t any good prospects for the company in the 9th round of CGD bidding. But I’m still trusting the mgmt for the time being when they’ve said they’ll bid for approx 20 cities.

(Bheeshma Sanghani, PhD) #224

Technical bids will be opened b/w 12th to 18th July.

95% of the current 91 GA’s are situated in the west and north, there are hardly any in south. In the 9th round, most of the GA’s are going to be opened for the eastern & southern areas.

More than 400 bids received - historically however, only half of the GA’s offered were awarded ( 56 out of 106 ). So assuming the same trend - out of 86 offered maybe 40-45 will be awarded.


(kush_gangar) #225

Some one mentioned MGL has not bid for any geographies which seems incorrect

(AKGupta) #226

RIL has withdrawn its bids however Adani IOCL combine has bid for 52 cities!
Anybody got an idea how many did MGL bid for?
I was not expecting that the bidding process will be less competitive than what it is since the value of these licenses is quite lucrative!
But in this humdrum we shouldn’t lose sight of the underlying opportunity of Natural gas consumption in the country. Once the dust settles, the winners will rule their respective markets for decades! One can only hope one is invested in the winners :wink:

(Sandeep) #228

Details of bids of other subsidiaries of GAIL, Mahanagar Gas Ltd and Gujarat State Petroleum Corp (GSPC) remained unknown

(Bheeshma Sanghani, PhD) #229

The details of bidders who are qualified at the technical level are being released and updated on the website

So far, MGL has bid for southern districts and i could find 3 bids by it

  1. Andhra Pradesh | Srikakulam. Visakhapatnam & Vizianagarm Districts
  2. Tamil Nadu | Chennai & Tiruvallur Districts
  3. Telangana | Medchal Rangareddy & Vikarabad Districts


(Ramasamy Babu) #230

Thanks Bheeshma. This looks huge opportunity for the allied sectors as well like pipes, construction etc. Given the size and awarding at near future which are the company that can be looked at related to this theme?

(suhagpatel) #231

Interesting. Circles of Andhra and TN are very lucrative and naturally there are more than 10 bidders fighting it out there. Could see even Petronet LNG there. So eventually different entities of GAIL are trying to outbid each other here.


(DrArvind) #232



(Bheeshma Sanghani, PhD) #233

I think one needs to see the population of these districts and vehicle count to get a sense. Its good that the excess cash with the co has a target now and these are interesting times for cgd entities with all these large scale investment opportunities. We will have to wait till oct to see what the final outcome is.

I think mgl is not that expensive and prices have fallen way below intrinsic value and dont know when it will happen but hopeful market reprices it eventually.

Disc - invested

(Mahendra243) #234

Other than Vizag in visakhapatnam dist…the other 2 are poor districts and limited sq feet area
Visakhapatnam is the most populous city in Andhra

Vizag 681.96 Sq KM
Vizianagaram 27.90
Srikakakulam 20.8

(Sandeep) #235

Hi Bheeshma, just curious to know what the intrinsic value is as per your assessment


(Bheeshma Sanghani, PhD) #236

Hi @Sandeepg

18-20 times 3 yr forward EPS - assuming an earnings growth rate of 3% , should be sensible to pay in my view. Its earnings growth fluctuates a lot with two-three years of sudden growth followed by three - four years of tepid or flat earnings. The 2017 and 2018 have been good so maybe it would be prudent not to expect much earnings momentum going forward, so 3% is good. With these assumptions - Rs ~1000 should be a sensible price to pay. Ofc, if results are good it would be nice but difficult to say at this juncture.

Item Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
YoY Growth in Earnings -1% 7% 1% 10% 40% 36% -3% 0% 1% 3% 27% 21%


(AKGupta) #237

An interesting piece I came across today to understand the economics of CNG, PNG and its comparative advantage over conventional fuels like petrol, diesel and LPG cylinders.

Some points in summary:

  1. PNG is 11% and 33% cheaper than subsidised and non-subsidised LPG cylinder respectively.
  2. CNG is 48% and 62% cheaper than diesel and petrol respectively.
  3. A slide in dollar, increase in international prices of Natural gas & rise in use of domestic gas from PMT (Panna Mukta Tapti) field are all negatives for CGDs.
  4. To offset the above negatives, CGDs raise retail prices of CNG, PNG. For eg. every 1 rupee slide in $ requires them to raise prices by 0.28-0.30/scm.

I spoke with an IGL executive some days back and he said it takes around 1.5 to 2 months to fit a new connection. Frankly, I think this is a lot!
But he also told me they give an option to convert upfront cost of 6k in EMI of 500 pm. Think that’s good to motivate people to come on-board.

Does MGL do something like this if anybody knows?

(kitesh) #238

Mahanagar charges 6500 out which 5k is refundable deposit . I think they had an emi scheme not sure will check my mgl bill

(Shyam) #239

Just went through their latest annual report and earnings call transcript.

Here are my findings:


  • MGL is currently is focused on Mumbai, for which the exclusivity ends by 2020. But, the barrier of entry is quite high and it favors MGL in this case
  • In Mumbai itself, as per their earnings call, only 30% of the market is addressed as of now. So, even if MGL captures another 30%, that is a decent number to look at in coming years
  • They are seeking to increase their run rate from 160k (current) to 200k connections per year. This would directly impact their revenue in a positive way
  • MGL is looking at expanding beyond Mumbai. This can very well be a possibility given the push towards CNG for cleaner cities (about 300 cities potentially would adopt CNG). Currently MGL is looking / bidding at 20 cities to expand and the results will be out on October.
  • They are looking at mobile dispensing units. These would increase capacity greatly without much increase in investments in land and other facilities.
  • Right now, the demand is good, resulting in long queues in the CNG stations. It is a matter of increasing capacity.


  • Currency risks due to the depreciation of rupees
  • Induction cooker can be a challenge to the use of natural gas. In the earnings call, the management referred to traditional electric stoves. But as it is happening in places like Singapore, gas will eventually be replaced by modules with inbuilt induction cookers. But, this is atleast 5 years in the future to have an impact.
  • Electric vehicles can be an alternative. But, this is also a much further down in future.

Overall, this is a boring business with just same old stuff done with a simple demand-supply equation. But, with demand being consistent, boring is definitely good. I think this has a good potential to yield about 15% CAGR with the current business and with growth kicking in (aggressively expanding to other cities), I assume it could be as high as 20-25% CAGR.

(Bheeshma Sanghani, PhD) #240

Mixed results by MGL. Sales growth of 16.9% & PAT growth of 3.2%. COGS has increased 26.7% leading to a reduction in gross margins from 57% to 54%. Other details are a show cause notice by PNGRB for slow work.



(jajushobhit) #241

The numbers broadly look decent. Good to see a volume growth of ~12%, as I was expecting a growth of ~10%. The fall in gross margins is a bit of a dampener, but I think the hike in prices by MGL in June, should support the margins, going forward.


(AJ) #242

The sales for the current current quarter is adjusted by certain prior period trade discounts of nearly 13 Crore - this is for the period Q1 2015 till Q1 2019 - if you consider this being a ratable charge over that period - the actual impact on the current quarter should have been less than about 50 lakhs(on both top and bottom line). If you normalise the sales and PAT for this one time impact the margins and PAT should have been up by another 1.5%.


Disclosure: Invested.

(bharat.jain) #243