MGL eyes excise cut in Budget 2024, sees limited near-term boost from Bajaj's CNG bike - CNBC TV18 (2024)

Mahanagar Gas shares were trading higher in early trade on July 10 after the company raised prices for compressed natural gas (CNG) and domestic piped natural gas (PNG).

Reports of a potential excise duty cut on CNG in the upcoming Budget on July 23, and positive sentiment from Bajaj Auto's new CNG bike launch, have lifted MGL shares, resulting in nearly a 20% gain in a month.

Ashu Shinghal, Managing Director of MGL told CNBC-TV18 that while the industry expects some excise duty rationalisation, there is also a possibility of gas being included in GST.

If this happens, an excise duty cut would not be necessary, as it would bring gas under a unified tax regime.

"For MGL, it will be a pass-through because any tax is not on our account. It is passed through to the customer," he said on the potential impact of including gas under GST.

Shinghal does not expect any immediate demand boost from the Bajaj CNG bike launch since the bike cylinder capacity is only about two kg. "To see any significant increase in our volumes, the number of bikes should be very huge," he noted.

These are the edited excerpts of the interview.

Q. What is the reason for this price hike and with spot LNG prices going higher from here, are we staring at more price hikes by companies like yours and between domestic and imported gas in terms of raw material sourcing? If you can also help us with what is the split currently?

A. The price hike is mainly because of two reasons, one that the APM (administrative price mechanism) gas allocation has come down substantially over the last one year's time, as well as the price of LNG has gone up. We were getting APM gas, which is at $6.50. From 82%, it has come down to 68%. So there is substantial reduction in the APM gas, which is the domestically available cheap gas.

And the LNG prices were earlier down, but now it has started increasing again. So we are constrained to increase one and a half rupees in the CNG prices. However, still we are the cheapest in the country in terms of CNG prices and PNG prices.

Q. Do you anticipate any impact on volumes? What's your volume growth outlook for this year and will EBITDA (earnings before interest, tax, depreciation, and amortisation) margins be north of 10 per SCM (standard cubic meter) this year?

A. The volume growth is expected to be better this year because overall the population of CNG vehicle is increasing as well as the CGD (city gas distribution) infrastructure is also improving. So last year, we have clocked a growth of around 5.5% year on year. This year, we expect to be more than growth will be more than 7%.

On margin, last year we were 9.5 per SCM. This year, it was 13.5 per SCM year on year. However, going forward, maybe we will clock around 11 or 10 to 12 could be the new guidance which we can expect this year.

Q. Bajaj Auto launched a CNG bike. And the Street believes this could throw up an opportunity. Have you done any back of the envelope calculations on what kind of a volume boost it could give the next year? Do you think it could boost up your volume substantially?

A. Not really. Because per bike consumption, the cylinder capacity is only two kg. So to see any significant increase in our volumes, the number of bikes should be very huge.

So it will take some time, maybe next year, we will get some volume, maybe 2-3% and afterwards it can increase further more. But definitely it will take some time to one that people are getting used to the new bike, although it is definitely much more advantageous in terms of running cost. As far as Mumbai is concerned, we expect that running a bike on petrol versus on CNG, CNG will be around 40% the cost of running a bike on petrol. So there is substantial saving on running cost and even the capital cost is not expected to be very high in the petrol bike.

We think this will be going to be a very good segment and we will be doing, we are already in discussions with Bajaj to see how we can help their initiative because we appreciate this is an excellent initiative.

Q. The other big event that we are looking forward to is budget 2024. Is there a possibility of excise duty cut on CNG in the upcoming budget?

A. We are hearing that, but we don't know for sure, because unless the budget is passed and what is included in the budget or not. The other point which we are hearing is maybe the gas can be included in GST, because if that so happens, then excise duty cut will not be required. It will be one tax regime for the gas segment itself.

Q. So if it's included, then what kind of a benefit is it for you? if the second part happens, gets included under GST, then what kind of a benefit could be for you as well as for the industry?

A. For MGL, it will be a pass-through, because any tax is not on our account. It is passed through to the customer. So the customer segment, industrial and commercial particularly, will get benefited in terms of if their input tax credit which they get and their product is under GST and the raw material is not under GST, then they don't get input tax credit.

So maybe their product price, they can get some benefit there. MGL, it will be a pass-through. For PNG segment, it can slightly increase the prices, because currently, the VAT in Maharashtra is 3%. So if gas is included more than 3%, then maybe there can be some increase in PNG prices.

Q. Just to go back to that earlier point on the bike. For example, we've had this a new bike CNG bike and maybe others will also launch bikes. UP, for example, has made registration free for hybrid vehicles, we've waived off the registration fee. My point is, CNG is an important segment right, almost three quarters of your business volumes are CNG, so will this push the network expansion, more CNG stations etc., could you give us a sense of how that is likely to come through and and what are the volumes, what kind of volume growth are you expecting for that segment. It's small right now this bikes per se but if there is a sustained push all across could this quicken the pace there?

A. The volume growth will take some time because of the impact of the bike only. There are around 3-4 lakh three-wheeler auto and three-wheeler auto takes around three kg per fill, whereas bike will take around two kg per fill. So double the numbers will give us maybe 10% volume, but then the numbers of bikes should be around 7-8 lakh, which will take a substantial period to come to that number in Mumbai or in our geographical areas.

CGD infrastructure, any which way we are going to increase because this year we are planning to put up around 85 stations, including Unison 30 and our stations put together. So we are going to increase our CNG infrastructure, whether bike is there or not there.

Q. What about the other two segments of the industrial segment, which is about 10% of volumes? How is that likely to grow any triggers there?

A. In the Industrial segment, we have grown by 12% last year. This year, we are expecting more than 10% once again because new infrastructure is getting created in Navi Mumbai, Thane and Raigarh, plus Unison also.

We are adding more industrial areas into our catchment areas. So more segment is expected to be added. Plus, we have designed our contracts more user-friendly, customer-friendly. And the pricing also is done as per their alternate fuel pricing. So we think the segment in industrial and commercial both will grow more than 10% this year.

MGL eyes excise cut in Budget 2024, sees limited near-term boost from Bajaj's CNG bike - CNBC TV18 (2024)
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