With the easing of lockdown restrictions and the opening up of the economy, gas utilities such as Mahanagar Gas Ltd also have rebounded well. The stock is up about 9% from August lows. The company had seen gas volumes getting impacted during the June quarter due to lockdowns following the spread of the pandemic. Total gas sales volumes had declined 17.1% sequentially to 2.398 mmscmd (million standard cubic meters) during the June quarter. The same, however, may be behind and the company is expected to see better volumes in the September quarter.
Other factors that support the growth in volumes include rising conversion of vehicles from petrol/ diesel to CNG, looking at the difference in prices. Analysts at Antique Stock Broking Ltd say that the conversions have reached around 9,000 vehicles per quarter and are building up to the pre-covid rate of 15,000 per quarter. Private vehicles remain the key contributors which accounted for almost 90% of the conversions in the previous quarter.
Meanwhile, the penetration of private vehicles still is low and this leaves scope for conversion of more private vehicles. Antique stock Broking says that “based on data declared by state transport authorities, they estimate it implying a penetration level less than 20%.
Other reasons that should support volume growth include more CNG bus additions by BEST and increased CNG network of MGL.
As the volume growth prospects may have improved, the expected rise in domestic gas prices is looked at with caution as the same can have bearing on the company’s profitability. Analysts, however, expect the higher costs to be passed through. Analysts Jefferies India Pvt. Ltd had said that “Even if Mahanagar Gas were to fully pass through the impact of the potential sharp rise in APM gas cost and a possible 60% rise in dealer commission, then too CNG would remain at an attractive discount of 40-55% to diesel and petrol." The margin outlook thereby remains intact.
As near-term prospects remain strong, however, some analysts remain cautious on medium-term volume growth outlook, post completion of Mumbai metro rail over 1-2 years. Yogesh Patil, senior research analyst at Reliance Securities Ltd feels Mumbai has space constraints for new CNG station additions and there are no new geographic area to aid volume growth story.
