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Higher Spot LNG prices dent margins

Our view

The 2QFY23 operating profit at Rs 2.53bn (-16% YoY; -11.5% QoQ), missed our and street estimates on higher than estimated gas costs and higher than expected dependence on expensive spot LNG. The gas sales at 318.2mmscm stood 11% YoY & 1.4% QoQ higher. After introduction in May’22, the UBP was dismantled effecting 16th Aug’22, with dependence shifting on spot LNG, on part of CGDs, to bridge the supply gap. In addition, limited availability of term gas also raised dependence on spot LNG. As a result, the gross and Ebitda per unit declined QoQ, despite price revision undertaken to offset increase in gas costs. Diminishing difference with alternate transport fuels impacted vehicle conversion at ~15000 in 2Q (vs 19000 in 1Q). Going ahead, high LNG price environment and limited headroom for CNG, vis-à-vis alternate fuel might continue to keep margins and growth in check. However a cap/reduction in domestic gas prices, if implemented as an outcome of Kirit Parik committee observation, could aid margins for MAHGL. ADD.

Result Highlights

? Profitability: Reported EBITDA and PAT stood at Rs 2.53bn (-16% YoY; -11.5% QoQ) and Rs 1.64bn (-20% YoY; -11.5% QoQ). Sequential and YoY weakness in earnings was primarily on higher gas costs even as sales volume improved QoQ and YoY.

? Gross Margin: The gross margin for the quarter stood lower at Rs 13/scm (-16% YoY; -9.2%QoQ), even as MAHGL under-took price revision to offset increase in gas cost. The average CNG price increased by 9.2% QoQ & 69% YoY to Rs 79/kg however PNG at Rs 54.8/scm stood 3.9% QoQ lower. The gas cost at Rs 36.1/scm stood higher by 171% YoY & 12.7% QoQ.

? EBITDA per unit: The EBITDA per unit stood sequentially lower at Rs 7.95/scm (vs Rs 9.1/scm in 1Q), due to weaker gross margins. UBP, was discontinued effective 16th Aug’22, shifting the responsibility of sourcing LNG on CGD companies to bridge the supply gap

? Gas Sales: The total gas sales during the quarter stood at 3.46mmscmd (+11% YoY; +1.4% QoQ), with CNG sales at 2.54mmscmd (+14% YoY; flat QoQ) and PNG at 0.92mmscmd (+3% YoY; +1% QOQ).

? Infrastructure development: During the 2Q, MAHGL added a) 5 CNG stations in GA-I&II, taking the total to 296, b) 39km of pipeline in GA-1&II taking total to 6325km & 7km in GA-III taking total to 365km.

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