Mahanagar Gas has continued its good performance in the third quarter of 2017-18. While its revenue grew 15% compared to same period last year, net profit grew 25% year on year.
The company’s compressed natural gas (CNG) volumes grew 6.9%, mostly because of the continued increase in CNG vehicles. With the waning of diesel subsidy, the switch to natural gas has started accelerating and Mahanagar Gas will be a major beneficiary of this shift. To cater to the increased demand—it is estimated that an average 5,000 vehicles are switching to CNG each month—Mahanagar Gas is planning to add more gas stations— currently it has around 200 gas filling stations.
Getting land to set up new gas stations in the heavily populated Mumbai region is one of the main challenges for Mahanagar Gas. Due to lack of enough gas stations, queues outside gas filling stations have been getting even longer. To solve this problem, Mahanagar Gas is exploring newer options such as mobile gas dispensing stations. The company is looking to fix dispensers on its gas transport trailers, so they it can fill gas directly into vehicles, once parked at a safe place—a parking lot, taxi stand, etc. This move will help Mahanagar Gas reach new locations, where stations construction has been stuck due to land acquisitions or pipe connectivity issues. Since this new method requires regulatory approvals, it may take a few quarters before it materialises.
The company’s piped natural gas (PNG) also reported a volume growth of 7.3%. PNG is much cheaper and less risky compared to liquid petroleum gas (LPG) and, therefore, the domestic demand for PNG is quite high. Mahanagar Gas has around 10 lakh domestic users now and plans to bring around 1.5 lakh new households into its fold every year by getting into newer localities and housing societies.
Relatively low gas prices compared to other fuels— petrol, diesel, LPG, etc.—is adding to the competitiveness of CNG and PNG. Mahanagar Gas has also benefitted due to the government’s decision of providing priority allocation to city gas distribution companies such as itself. Since the company’s natural gas price is at a discount to alternative fuels now, Mahanagar Gas will be able to protect its high margin by passing on any cost increase to consumers without any problem.
Analysts’ views
Buy 12
Hold 3
Sell 6
Performance of Mahanagar Gas compared with the Sensex. Stock price and Index values normalised to a base of 100. Source: ETIG Database & Bloomberg
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