MGL - Mahanagar Gas Limited Share Price

Mahanagar Gas Limited (MGL) provided a comprehensive outlook during the Q2 FY 2026 Earnings Conference Call, highlighting a range of operational metrics and financial expectations. Key forward-looking points include:

1. Sales Volume Growth: MGL achieved an overall average sales volume of 4.593 MMSCMD, up from 4.454 MMSCMD in Q1, marking a 3.11% increase. This included CNG volumes of 3.22 MMSCMD, DPNG volumes of 0.582 MMSCMD, and 0.757 MMSCMD for industrial and commercial customers.

2. Operational Infrastructure: The company connected an additional 53,566 domestic households, totaling 2.94 million households. They also laid 87.4 kilometers of new pipeline, bringing the total to over 8,061.62 kilometers, and added 14 new CNG stations, totaling 485 stations as of September 30, 2025.

3. Financial Performance: The EBITDA for Q2 was INR 338 crores, down from INR 501 crores in Q1. The net profit after tax was INR 193 crores compared to INR 320 crores in the prior quarter. For the first half, EBITDA totaled INR 839 crores, with net profit after tax at INR 513 crores.

4. Margin Guidance: For upcoming quarters, management indicated expectations for margins in the range of INR 8.5 to INR 9.5 SCM, adjusting from an earlier range of INR 9 to INR 10 SCM. They highlighted the importance of volume growth over margins, attributing past margin reductions largely to increased gas costs and exchange rate fluctuations.

5. Future Capex and Investments: MGL plans a capex of INR 900 crores to INR 1,000 crores for FY 2026, including expenditures for their subsidiary, Unison Enviro Private Limited (UEPL). Management noted that tax benefits and reduced liabilities would accrue from the recent amalgamation.

6. Vehicle Registration Trends: As of the call, 27,150 CNG vehicles were added in Q2, with management expecting continued growth in vehicle registrations, particularly in the commercial sector, aided by promotional schemes.

The insights shared position MGL for steady operational and financial development in the near term while navigating the complexities of cost management and competitive pressures in the market.

1. Question: "Sir, just a couple of questions. First, I just wanted to understand the reasons for the cost increase that we have seen. Can you expand on what has happened to margins this quarter?"

Answer: Compared to Q1, Q2 margins have indeed reduced primarily due to increased gas costs. Factors include a higher weighted average cost from spot RLNG and HPHT, along with a decrease in NWG allocation. APM levels have marginally dropped, and the exchange rate impact was about INR0.50 per SCM, contributing to the overall increase in gas costs by around INR0.70 to INR0.75 per SCM.

2. Question: "How much is the percentage? If I can get a number in terms of Q1 versus Q2 for APM plus NWG of the priority allocation?"

Answer: APM has slightly decreased from 1.7 to 1.68 MMSCMD, while NWG fell from 0.5 million to approximately 0.35 million. The overall impact on our costs is about INR0.70 to INR0.75 per SCM. The exchange rate also contributed an additional INR0.50 per SCM due to a two-unit rise in INR against the dollar, cumulatively affecting our margins.

3. Question: "Just to understand for the second half then, how can we mitigate some of this? Is there a price rise that we can be looking at?"

Answer: Yes, one option is a price rise, but we will be cautious, especially with CNG prices since we aim to drive volumes. We are evaluating costs and will watch for potential price adjustments closely. We anticipate that new long-term contracts for HPHT gas may become available in January 2026, which could improve pricing conditions in Q4.

4. Question: "In terms of guidance, should we work with somewhere in the vicinity of INR9, or do you think that it isn't reasonable for the second half?"

Answer: For Q3, I would suggest a reasonable estimate is around INR8.5. Considering current factors and as gas pricing stabilizes, we anticipate improvements in margins in Q4. Monitoring exchange rates and APM allocations will be critical as we adjust our guidance over time.

5. Question: "Can I have more detail in terms of the procurement mix, what is the volume...?"

Answer: Apart from APM and NWG, we have about 1.45 MMSCMD sourced from Henry Hub-linked contracts, and 0.5 MMSCMD from HPHT, exclusive of the 0.1 MMSCMD from Reliance gas. We utilize spot gas through IGX, generally consuming 0.3 to 0.4 MMSCMD. Our procurement strategy continues to focus on optimizing gas sources.

6. Question: "Can you please elaborate on the EV policy? Do you see the CNG volume mix changing?"

Answer: While Maharashtra's EV policy aims to increase EV adoption, we foresee limited impact on our CNG volumes, particularly in three-wheelers, which have seen negligible EV penetration. Factors such as charging infrastructure and high upfront vehicle costs will hinder rapid EV growth, allowing CNG to maintain its position in the market.

7. Question: "What value do you think the new businesses in EV charging and battery manufacturing will hold in terms of top line over the next 3 to 5 years?"

Answer: Our IBC venture, with an INR800 crore investment, could yield a top line of around INR1,000 crores over time as the plant becomes operational. However, these new businesses won't substantially influence our overall revenue in the short term; gains will manifest when projects are established and mature over several years.

8. Question: "What would be the capex guidance for FY '26?"

Answer: We anticipate our capex for MGL will be between INR900 crores to INR1,000 crores, with UEPL comprising around INR150-200 crores. In total, we are planning a capex of approximately INR1,100 to INR1,200 crores for the fiscal year.

9. Question: "What is the landed gas cost coming from different sources, like APM, HPHT, and RLNG?"

Answer: The landed cost for APM is approximately INR24 to INR25 depending on the exchange rate. For HPHT, it ranges from INR32 to INR38, while pure RLNG can go up to INR42 per SCM, factoring in transportation costs.

10. Question: "Regarding the amalgamation, are there adjustments expected in the P&L and balance sheet? What cost savings or tax benefits do you anticipate?"

Answer: Yes, we foresee tax savings from reduced GST obligations between transactions within the merged entity. License costs will be depreciated for tax purposes, leading to an estimated tax benefit of around INR35 crores over two years. Book effects will not show significant increases in reserves due to previous losses at UEPL but will aid future financial performances.