Expecting better price realisation in industrial, commercial spaces: SM Ranade, Mahanagar Gas

In a chat with ET Now, SM Ranade, CFO, Mahanagar Gas, discusses the growth potential in oil and gas sector and highlights the growth margins of Mahanagar Gas in recent times.

Edited excerpts:

The Petroleum And Natural Gas Regulatory Board (PNGRB) has notified the new criteria for the City Gas Distribution (CGD) round of bidding. How beneficial do you think that would be for the sector?


This is good for the entire city gas distribution industry. PNGRB has announced 86 GAs. Each and every player in the city gas space will get a chance to bid. We will be very selective as far as internal financial and non-financial factors are concerned.

Analysts are seeing a material rise in domestic and LNG supply over next three to four years. How will this impact your company?

Higher domestic supply is definitely going to be good news for the company because CNG and household category gas sales account for nearly 86 per cent of the total.

Which new cities are you eyeing and are you confident of winning in the new round of bidding?

The process of shortlisting is still on as PNGRB has recently announced the bidding process and therefore we are still studying various GAs. We are planning to shortlist 20 cities for now. Thus, it will be bit premature right now to say which are the areas we will be bidding for.

You have a much superior margin profile in comparison to others in the industry. Where do you see margins sustaining over the next one or two years?

About 9 months of 2017-2018 was excellent for the company. From margin perspective, most factors were good for the company. Since the oil prices are going up, the prices of its probable peers like fuel oil will also increase, thereby giving us a competing edge in industrial and commercial segment. We are expecting better price realisation in industrial and commercial space. Also, in case of CNG, the volume has gone up nearly 74 per cent since the hike in petrol and diesel prices.

CNG is a value proposition for customers because of the substantial discount we offer through our products, thereby giving us good margins. What could be a bit of a dampener is the rupee dollar exchange rate, as we buy in dollar denominated terms and sell in rupee terms. Hence we need to be a little cautious on the exchange front.

What is the potential for volumes to improve from here?

On a five-year basis, we have been growing at a CAGR of around 6 per cent and are expecting to continue in a similar manner. Also, there are positive things in the household category where we have been growing in double digits and that is definitely going to continue. If stricter actions are taken for pollution control in major cities , that will triple the potential in sales. Similarly, if public and commercial vehicles are made to run on CNG, there will be a sea-change in the growth rate.