Mahanagar Gas Ltd - a natural monopoly

(sandeep17) #61

Making CNG a part of GST is actually beneficial to the company. MGL has been raising this concern for some time now that excluding CNG was adding a tax burden to its consumers since they wouldnt be able to avail any tax credits making CNG less attractive for them.

(suhagpatel) #62

Mahanagar Gas starts Piped Natural Gas (PNG) supply in Dombivili (East) area of Maharashtra

(Ajith) #63

(Ajith) #64

Here is the proposal document by GAIL. Although this would likely increase the tariffs depending on the pipeline region, in the long run its a good news to the industry.

PCP28092017.pdf (1.8 MB)

(Ajith) #65

Meanwhile LPG cylinder price set to increase again for the fifth time since May, so roughly there is a hike every month. This no respite for LPG customers is good for PNG traction. Although not sure if there is a hike of LPG cylinders in Mumbai. Definitely IPG is set to scale.

Disc: invested in MGL

(Bheeshma Sanghani, PhD) #66

2017 AR

(Bheeshma Sanghani, PhD) #67

Structure of the natural gas industry to better understand it

(kelkar) #68

What will be the impact of Electrical vehicles on CGD co / on Mahanagar gas.?
76% revenue come from CNG business . And out of tht major portion come from Public transport like BEST, TMC etc…
As govt policy, 1st all public transport will convert into Electrical…

(Bheeshma Sanghani, PhD) #69

The broad theme is the shift to a gas based economy from a coal based one. There is a severe shortage of natural gas in India and one has to rely on imports. Therefore 110% of the domestically produced gas is diverted to CNG ( Transport ) and PNG ( domestic ), benefiting City Gas distributors and this is expected to continue.

Shift to electric is a reality and will happen at some point in the future. This will be very good news for City Gas Distributors as it will free up gas supplies that can be diverted to more productive uses like the industry and commercial enterprises which are anyways in desperate need for gas which is not available and hence have to rely on more expensive fuel. Also the price realizations are higher for these sectors compared to the priority sectors of Transport and Cooking gas which will be an added benefit.

(Bheeshma Sanghani, PhD) #70

(samip2u) #71

Is there a fair peer comparison available for MGL to understand its entry point ?

(Sandeep) #72

Indraprastha gas looks fair to me for the purpose of peer analysis

(samip2u) #73


Indraprast gas, yes its a fair peer along with Guj Gas. performance wise, MGP is better in ROE, PAT margins than IPG. Still why the market is making MGL trade at a PE of 28, when Indraprast is trading at PE of 47.
what precisely the market is discounting for ?

(Bheeshma Sanghani, PhD) #74

IGL has a better volumes and a larger network + investments - it holds 50% stake in MNGL and CUGL. MGL has a network of 4838 kms of pipeline and 203 CNG stations while IGL has a network of 10718 kms of pipeline and 421 stations. Basically IGL is twice as big as MGL + marketable assets in associates. I am not sure IGL has a PE of 47 - its much lower at 35-37.

A better way to look at valuations is to compare the EV/km of pipeline. Roughly MGL is 2.5 cr per km & IGL is 2cr per km. It takes about 5cr per km of pipeline ( including land cost). So in my view , both companies are available below replacement value. However i am not sure about the pipeline laying cost as estimates vary.


(Sandeep) #75

Nice analysis. Also, I would say that the valuation differential is primarily due to Delhi government’s stringent rules on pollution levels due to which CNG vehicles are actively used in Delhi whereas it is not still so in Mumbai. Basically, current volumes are high and growth visibility is also high for IGL.
Having said that, its better to be an investor in MGL as Mumbai will have to get stringent on pollution at some point in time in the future which can be positive for MGL.

Suggestions are welcome.

(Sandeep) #76

Q2 result out

(Bheeshma Sanghani, PhD) #77

Good set of numbers again from MGL driven by volume growth - particularly in the domestic PNG segment. The gap between CNG and Domestic PNG as a % of revenue is steadily narrowing. Of particular note is the increase in Investments + Cash & Equivalents. They have increased from 602.78 cr to 765.31 cr - a growth of 27% in 6 months.

(Sunil) #78

Volume growth is just 2-3% right. Net profit have increased because of decrease in cost of natural gas.

(Sandeep) #79

Ya. Volume growth is expected to remain at this level unless there is a strong trigger in terms of new ola,uber conversion and so on. Having said that, the selling price can be increased if the petrol/diesel start rising due to the rise in the crude.

In a nut shell, only expansion can give volume growth in the near future. All in all, a good set of numbers.

(Bheeshma Sanghani, PhD) #80

At a quarterly level volumes are the highest they have been in the past 6 qtrs.

Q1-17 - 2.50 mmscmd
Q2-17 - 2.60 mmscmd
Q3-17 - 2.56 mmscmd
Q4-17 - 2.62 mmscmd
Q1-18 - 2.57 mmscmd
Q2-18 - 2.70 mmscmd

Another important development in the NG industry is that US has recently become a net exporter of NG having a global impact on Natural Gas prices and has played a key role in pushing prices down further. This is expected to continue.