Mahanagar Gas Ltd (MGL) Q2 FY23 Earnings Concall Transcript

Mahanagar Gas Ltd (NSE: MGL) Q2 FY23 Earnings Concall dated Nov. 14, 2022

Corporate Participants:

Diwakar Pingle —

Unidentified Speaker —

Analysts:

Ankur Agarwal — PhillipCapital India Private — Analyst

S. Ramesh — Nirmal Bang Equities — Analyst

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Aditya Suresh — Macquarie — Analyst

Maulik Patel — Equirus Securities — Analyst

Saurabh Handa — Citigroup — Analyst

Sabri Hazarika — Emkay Global — Analyst

Abhilasha Satale — Quantum AMC — Analyst

Yogesh Patil — Centrum Broking — Analyst

Somaiah V — Spark Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Mahanagar Gas Limited Q2 FY23 Earnings Conference Call hosted by PhillipCapital India Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Agarwal from PhillipCapital India Private Limited. Thank you and over to you, sir.

Ankur Agarwal — PhillipCapital India Private — Analyst

Thank you, Ranju. Good evening to all the participants. On behalf of PhillipCapital India, it is my pleasure to welcome you all to the Mahanagar Gas Limited’s Q2 FY23 and H1 FY23 Earnings Conference Call. Today, we have with us the senior management team of MGL represented by Mr. Sanjay Shende, Deputy Managing Director; Mr. Rajesh Patel, Chief Financial Officer; and Mr. Rajesh Wagle, Senior Vice President, Marketing. They will share the initial remarks on the quarterly performance of the Company and that will be followed by the Q&A session.

Before that, I would now pass it on to Mr. Diwakar Pingle [Phonetic] for reading out the disclaimer. Over to you, sir. Thank you.

Diwakar Pingle —

Thank you, Ankur, and welcome to the participants in this call. Before we begin, I would like to mention that some of the statements made in today’s discussion may be forward-looking in nature, and we believe that the expectations contained in the statements are reasonable. However, these statements involve a number of risks and uncertainties that may lead to different results. Risks and uncertainties related to these statements are included but not limited to fluctuation in sales volume, fluctuation in foreign exchange, other costs and our ability to manage growth. I urge you to consider the quarterly numbers are not a reflection of long-term trends or an indication of full year results. They should not be attempted to be extrapolated or interpolated into a full year number.

With that said, I will now hand over the call to the management. Thank you and over to you, sir.

Unidentified Speaker —

Good afternoon, and welcome to the Earnings Call of Mahanagar Gas Limited for the quarter two of financial year ’22-’23. I would like to thank all of you for attending our earnings call today. Due to continuing geopolitical situation and supply shortages across the world with respect to natural gas, Q2 of ’22-’23 remains challenging for MGL and for the entire CGD industry due to high input gas costs. To meet the growing demand of the sector and to bridge the gap between APM allocation location and demand from the priority sector, that is essentially CNG and domestic PNG, Ministry of Petroleum and Natural Gas issued revised guidelines in May ’22 and full Gas was being provided to all CGD entities at uniform base price or EBP for priority sector.

Under these guidelines, pool gas allocation was revised on a quarterly basis by constrained consumption of previous quarter plus 2.5%. This helps the CGD entities like Mahanagar Gas to grow their demand by using market price gas for the quarter and in subsequent quarter gets full gas allocation against such increase in the volume. However, within pool gas, APM location was done based on the availability of the domestically produced gas. During the period, pool gas mixed with market price gas which included LNG was supplied at $8.91 per MMBTU for July ’22, $10.52 per MMBTU for the first fortnight of August ’22 and from August 16, ’22 practice of mixing market price gas, essentially RLNG was discontinued and since then, CGDs are required to bridge the gap on their own.

The present pool gas location, which is essentially anything but APM and CPG or some portion of HPHT, that is high-pressure, high-temperature gas, which is approximately 90% of the CGD requirement for the priority sector.

On the demand side, MGL continues to create CGD infrastructure across its business segments in the license area. During the quarter, 62,000-plus domestic households were connected and thus we have established connectivity for nearly 1.99 million households in our license area. We have laid 39 kilometers of steel and PE pipeline thereby taking the aggregated pipeline lens to over 6,325 kilometers.

We have also added five new CNG stations and with these, we now have 26 CNG stations as on the end of the quarter. We have also added 86 industrial and commercial customers during the quarter and thus, on the quarter end, we have 4,427 industrial and commercial customers.

In respect of our Raigad GA, we are connected to 60,320 domestic households and 23 CNG stations are currently operational. During the quarter, we have laid approximately seven kilometers of pipeline in Raigad GA, thereby taking the total length of pipeline in Raigad GA to 365 kilometers. This expansion of our pipeline network has created a very good ecosystem for CNG and PNG in the Raigad area and will definitely enable expeditious unlocking of demand in Raigad once our City Gate Station at Savroli is operational.

Overall average gas sales volume for H1 of the current year compared to the H1 of the previous year has increased from three — increased to 3.453 mmscmd from 2.763 mmscmd, an increase of over 25%. CNG volume has also increased to 2.540 mmscmd from 1.894 mmscmd, which is an increase of 31% — 34.51%. Industrial and commercial sales volume has also increased to 0.442 mmscmd from 0.410 mmscmd, an increase of 7.8% and the sales volume for domestic PNG has increased to 0.470 mmscmd from 0.459 mmscmd, an increase of 2.4%.

Coming to MGL’s operation during the quarter, we have achieved an overall average gas sales volume of 3.459 mmscmd, an increase of 0.3% over the previous quarter volume of 3.448 mmscmd. Compared to the previous quarter, sales volume in the case of CNG has increased from 2.539 mmscmd to 2.541 mmscmd, which is an increase of 0.1% only. In the case of industrial and commercial sales, volume has increased from 0.439 mmscmd to 0.447 mmscmd, an increase of 1.8%.

Sales for domestic PNG for the quarter has increased to 0.471 mmscmd as against the previous quarter volume of 0.470 mmscmd, an increase of 0.3%.

The current quarter’s EBITDA is 22 — INR253 crore compared to the previous quarter’s EBITDA of INR286 crores. EBITDA margin is at 16.18% for the quarter as compared to the previous quarter EBITDA margin of 19.60%. Net profit after tax is at INR164 crores for the quarter as compared to INR185 crores in the previous quarter.

With this, I conclude and would now like to open the floor for. questions. Thank you very much.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.

S. Ramesh — Nirmal Bang Equities — Analyst

Hello, good evening, and thank you very much. So, if you can explain to what extent the price increase you have taken in CNG and PNG in November has offsetting the increase in gas cost, that will help us understand how this will help you maintain or improve margins in this quarter.

Unidentified Speaker —

I think this is a question pertaining to current quarter that is Q3, and you know, our current price is at INR89.50 per kg in case of CNG and INR54 rupees per SCM in case of domestic.

S. Ramesh — Nirmal Bang Equities — Analyst

Yeah. So, to what extent does it help you offset the increase in the gas cost? Or is some more price increase required to offset the increase in gas cost? That was the question.

Unidentified Speaker —

See, if you look at the availability of APM gas coupled with requirement of market price gas to be mixed with [Indecipherable] catering to CNG and domestic, the cost keeps on changing. So, we have more or less passed on. Maybe some marginal amount might not have been passed on, keeping in view the current diesel price and the petrol prices. However, we will always review that and see how do we best maintain our margins.

S. Ramesh — Nirmal Bang Equities — Analyst

And what will be the share of spot LNG in your overall gas purchase basket?

Unidentified Speaker —

So, on an average, we have been getting 90% of our requirement. And it has been going up to at times up to 93%, 94% as well.

S. Ramesh — Nirmal Bang Equities — Analyst

Okay, there’s one last thought. In terms of the capex and the incremental upside in the future growth in the CGD volumes, can you give us some sense how much will spend this year and over the next couple of years? And how that will help you grow your volumes over the next two, three years?

Unidentified Speaker —

So, as far as capex is concerned, up to September, we have already spend around INR300 crores, okay — little less than INR300 crore. And since our actual construction season starts post monsoon, we will be doing capex in the range of around INR650 crores to INR800 crores, that is our endeavor, but actual capex will always depend on the availability of permissions and other things. Our budget — our preparedness is there up to INR800 crore. We should watch and see how much we’re actually doing.

S. Ramesh — Nirmal Bang Equities — Analyst

So can we get some sense in terms of what is the upside in volumes we can expect? How do you spend 800 x 3, so INR2,400 crores of capex, how much will it help you in terms of your future volume growth?

Unidentified Speaker —

We maintain the guidance on growth in the range of around 6% CAGR, three- to five-year CAGR. It may be a little more this year because of last year impacted by COVID, so compared to last year, average of three mmscmd. Today, we are already touching almost 3.45 mmscmd to 3.5 mmscmd. But however on a three to five years period, we will maintain the guidance at around 6%. With you City Gate station getting set up in GA3 and slowly, we will convert some of these stations which are currently running on daughter booster mode or non-online mode to online, we will see growth coming from GA3, as well as CNG and industry as well in that region. And also, we are adding new customers in GA1 and GA2 and more and more vehicles switching onto CNG will help us the growth in the range of around 6%.

S. Ramesh — Nirmal Bang Equities — Analyst

Thank you, Rajesh. Thanks a lot, and wish you all the best.

Unidentified Speaker —

Thank you.

Operator

Thank you. Next question comes from the line of Varadarajan Shivasankaran from Antique Limited. Please go ahead.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Thank you for the opportunity. Sir, what has been the vehicle conversion numbers? And we are still quite surprised by the flat volume growth Q-o-Q. Is there anything reason why it was so?

Unidentified Speaker —

Yeah, if you look at vehicle conversion numbers in Q2, they are marginally lower. Overall, around 15,500 vehicles have come on to CNG this quarter as against probably around 19,000 vehicles in the last quarter, which includes more or less similar number on account of commercial vehicles, roughly in the range of around the, 2,200 plus. There is an addition of even private cars, 11,300. Even taxes have been added, some amount of taxis, around 200 and small number of buses, around 20. This is the number. So, overall around 15,500 is the number added during the quarter.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

In this context, when we have this kind of numbers though it is down Q-o-Q, but still can [Indecipherable] the volume numbers were absolutely flat quarter-on-quarter. Any specific reason for it? Or is it only kind of monsoon or such [Technical Issues]?

Unidentified Speaker —

If you look at the CNG volumes in particular, your — the price has been steadily increasing from Q1 to Q2. So, though cost of CNG what we hear from reports, pinching the autorickshaw drivers and taxi drivers, et-cetera, so, our guess is that they are driving more conservatively previously where they used to run a lot of dead kilometers, looking for passengers to pick up, et cetera, that has gone down. So, there is a chance that the per-capita consumption might have dropped a little bit.

Unidentified Speaker —

And other thing is look at this 15,000 vehicle numbers which are added in the quarter, that is actually a relatively very small number when you compare it to the 8,00,000-plus vehicle population which is on CNG. So even this quarter-on-quarter increase, flat, decrease, [Indecipherable], that is very difficult to micro manage or explain [Speech Overlap] However, if you look at it on annual or CAGR basis, you will see the consistent growth which is there.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Understood, sir. If I can squeeze in one more question, what is the mid-term contract supply? Was there a significant cut? What was the actual volume vis-a-vis the contractor volume?

Unidentified Speaker —

Generally, it is observed that if there was a term contract which has some proportion which is on best endeavor, then during the time when spot prices are comparatively higher, the supply is restricted to supplier pay more or less. Any numbers that you can share?

Unidentified Speaker —

[Speech Overlap] t was not supplied over and above the supplier pay level under at least one or two contracts.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Understood. But what was the number? Could you give us some indication?

Unidentified Speaker —

Roughly, we must have got around all put together in the range of around 0.45 to 0.47.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Fair enough, sir. Thanks a lot, I’ll come back in the queue.

Operator

Thank you. Next question comes from the line of Aditya Suresh from Macquarie. Please go ahead.

Aditya Suresh — Macquarie — Analyst

Hi, sir, thank you for the opportunity. Sir, two questions. First is, in terms of your margins, right? So, is it fair to say that at the current kind of CNG price of INR89.5, all else constant in the current environment, you’re going to be able to protect your existing margin even in the next quarter? Or do you see that margins should fall given where we are from a pricing perspective?

Unidentified Speaker —

Yeah. See, it’s not appropriate right now to guess or comment on the Q3 margin. However, I can say that compared to Q1, Q2 margin we have been either able to improve or maintain more or less okay as far as CNG and domestic PNG is concerned, both these margins have been well maintained. In fact, we have realized a little more compared to Q1, okay. And as far as industrial and commercial is concerned, since our pricing is linked to alternate fuels, in view of alternate fuels coming down on an average, the basket fuels are seeing a reduction of almost 20%, 22%, the realization there has gone down compared to Q1, though it still remains good in terms of you earlier — corresponding previous year same quarter or something. But Q1 of this year was exceptionally good as far as realization was concerned. At the same time, the gas cost, overall index, be it Henry Hub, be it Brent [Technical Issues] contract.

The gas cost, especially, Henry Hub has increased. So, overall, gas cost has increased and realization in case of I&C has been under pressure because of the linkage to alternate fuels. In spite of charging premium, we have not made as good realization as it was in Q1.

Aditya Suresh — Macquarie — Analyst

Correct. I guess if I — sorry for the basic question as well, sir, APM has gone from 6 to 8.6 and our pricing has gone at the CNG retail outlook from 85 towards 90. I guess, in that context, I’m just worried if that margins will see more downside compared to where we are today? Is that a fair understanding of situation or if you can just help us with that, yeah.

Unidentified Speaker —

I would certainly say that margins are under pressure because as you are saying 40% APM price has gone up. We have to now watch and see how much allocation of APM is available and what is the price of market price gas which comes up in this quarter or the subsequent quarter, that will more or less decide the margin. Our endeavor will be always to maintain the margin. However, we will always look at we don’t cross the a limit where we don’t put anything on the table for the customer vis-a-vis diesel and petrol. Certainly, margins are going to be under pressure. Also another factor which is contributing to the cost is exchange rate which as you know, rupee devaluation is also impacting.

Aditya Suresh — Macquarie — Analyst

Is there a floor margin which you all think about? That’s why [Phonetic] we’ve seen some of your peers kind of prioritize margin over volume. So if you were to prioritize margin

Unidentified Speaker —

[Speech Overlap] practice as a floor margin.

Aditya Suresh — Macquarie — Analyst

Okay. I guess, the final question, sir, was at 89.5, it’s very possible that as you were saying as well that the users of CNG have been a bit watchful in terms of demand patterns. But can you speak about the ability to further increase prices given where we are today and given some of the kind of feedback you’re getting from your customers?

Unidentified Speaker —

Currently, we are comfortable with the kind of price we have — price rise we have taken, but we’ll have to wait and watch how spot prices move going forward, and we’ll take a call accordingly. If you look at it currently, the spot prices have started a little bit tapering, but one can’t say with very high confidence how long that price will remain.

Aditya Suresh — Macquarie — Analyst

Okay. Thank you. Thank you for the clarification.

Unidentified Speaker —

Yeah.

Operator

Thank you. Before we take the next question, a reminder to all the participants to please restrict yourself to two questions. The next question comes from the line of Maulik Patel from Equirus. Please go ahead.

Maulik Patel — Equirus Securities — Analyst

Thanks for the opportunity. Sir, do you have any visibility [Phonetic] of this medium-term contract which you signed last year? Can you just tell us what’s the validity of those contracts? For how long those contracts are there?

Unidentified Speaker —

Out of the term contracts, we have one contract which is medium term and it’s roughly ending somewhere in

Unidentified Speaker —

Seven, eight months.

Unidentified Speaker —

Seven, eight months — next seven, eight months.

Maulik Patel — Equirus Securities — Analyst

Okay. Sir, you had, I think, three contracts, which I think you mentioned in the last con call.

Unidentified Speaker —

Yeah. Other two are for five to six years. This one was of a shorter tenure, and it is having balanced seven, eight months from now.

Maulik Patel — Equirus Securities — Analyst

Got it. And sir, any update you have to share on — related to this Kirit Parikh Committee, which government has set up? And also, with this ministry notification which was there in mid of August, that subsequently going forward, the APM gas allocation will be linked to the increase in number of the PNG connection? Anything, sir, to share?

Unidentified Speaker —

Regarding the Kirit Parikh Committee, we are eagerly awaiting the outcome of the report and subsequent approval of the same by the government. As far as that 10th August circular is concerned, there were two circulars on 10th August. The second circular doesn’t talk about linking it with PNG. Yeah, so, PNG connection. So, we presume that, that is not on the table as of now.

Maulik Patel — Equirus Securities — Analyst

Got it. So, you may continue to get it around 94% of the — or 90%, 91%, 94% of the — your requirement with [Phonetic] the APM gas from the government?

Unidentified Speaker —

Yeah. APM gas is then blended with some amount of high-pressure, high-temperature gas, as well as CBG, that is compressed bio gas. And the price at which it is being sold today is

Unidentified Speaker —

Around $6.26. Yeah, up to Q2, I’m saying.

Maulik Patel — Equirus Securities — Analyst

Sorry. Can you just repeat that? Can you just repeat the last and what is 6.26?

Unidentified Speaker —

That is uniform base price.

Unidentified Speaker —

Uniform base price for APM gas, which includes APM, CBG, HPHT.

Maulik Patel — Equirus Securities — Analyst

Okay. Yeah. Got it.

Unidentified Speaker —

And currently, it should be somewhere around — I think 8.57 is APM. So, blended CBG, HPHT is somewhere around 8.75 or so.

Maulik Patel — Equirus Securities — Analyst

Got it. Got it.

Unidentified Speaker —

But the price is declared every month.

Maulik Patel — Equirus Securities — Analyst

Yeah, got it. Thank you. Thank you very much.

Operator

Thank you. Next question comes from the line of Saurabh Handa from Citigroup. Please go ahead.

Saurabh Handa — Citigroup — Analyst

Yeah. Thank you for the opportunity, sir. My first question is on these term LNG contracts. Sir, you said you got around 0.45 MMSCMD in Q2. How much is the contracted quantity across these three contracts?

Unidentified Speaker —

Roughly around 0.66.

Saurabh Handa — Citigroup — Analyst

Okay. And this excludes the KG [Phonetic] gas of 0.1, right?

Unidentified Speaker —

No, including.

Saurabh Handa — Citigroup — Analyst

Okay. It includes. So the LNG part will be around 0.55?

Unidentified Speaker —

You are saying overall?

Saurabh Handa — Citigroup — Analyst

Yeah. So, this 0.66 includes the KG of 0.1, is that correct? So excluding the KG, it would be 0.55 of term LNG?

Unidentified Speaker —

Yes. Yes.

Saurabh Handa — Citigroup — Analyst

Okay. Thank you. Sir, my second question was on industrial and commercial realizations in the quarter. Could you give us the numbers? How much they were in Q2?

Unidentified Speaker —

You are saying sales price realization?

Saurabh Handa — Citigroup — Analyst

Yes, sir, the realization.

Unidentified Speaker —

Yeah. It has ranged between, on an average, INR60 per SCM to INR66 per SCM.

Saurabh Handa — Citigroup — Analyst

This is across both industrial and commercial?

Unidentified Speaker —

Average of all. Yeah, industrial and commercial, yes.

Saurabh Handa — Citigroup — Analyst

Okay. Sir, just my last question, if I may. On the committee — on the Kirit Parekh committee, are there any timelines that you are looking at? That’s one. And secondly, are you also hopeful for any sort of relief on the allocation side? Because, obviously, 94% has come down to maybe around 90% now. So, I’m guessing the absolute volume number is not changing, and as your volumes grow, the percentage will keep coming down. So one is on timelines, and secondly, anything on the allocation itself that you are hopeful about?

Unidentified Speaker —

The timelines are a little uncertain, but we definitely look forward to the outcome of the report — Kirit Parekh report, because it was especially constituted for taking into account the aspirations of the city gas companies in the country. And as far as the present APM allocation and our uniform base price allocation is concerned, couple of months back, GAIL had — we understand that GAIL had added some more quantity by cutting the — from the priority sector of power, but we are not aware of any further upside to [Indecipherable] now as of now.

Saurabh Handa — Citigroup — Analyst

Okay. But — so you’re hopeful still that maybe there can be developments on [Technical Issues] your allocation?

Unidentified Speaker —

If there is any HPHT gas which comes in the market and GAIL sources it, then yes, that will be added to the kitty going forward.

Saurabh Handa — Citigroup — Analyst

But not from the power sector?

Unidentified Speaker —

We are

Unidentified Speaker —

Really, we are not in a position to comment on this question.

Unidentified Speaker —

I think you can pose this question to GAIL India Limited?

Unidentified Speaker —

Or the government?

Saurabh Handa — Citigroup — Analyst

Fair enough, sir, thank you.

Operator

Thank you. The next question comes from the line of Sabri Hazarika from Emkay Global. Please go ahead.

Sabri Hazarika — Emkay Global — Analyst

Yes, sir. First question is regarding this ONCG, GAIL pipeline tariff issue. So, you’d be like fighting this out in higher courts, right? So, just wanted to know, I mean, this court appeal would be the last one of it or you can like — you’d have room — if by chance if something comes against your favor, then is there any further chance? Or it is like the final forum?

Unidentified Speaker —

Certainly, we will be fighting out this case, and it can go up to Supreme Court as well.

Sabri Hazarika — Emkay Global — Analyst

This will be in the Bombay High Court?

Unidentified Speaker —

No, this will be initially in Delhi High Court.

Sabri Hazarika — Emkay Global — Analyst

Okay. And then if not, then you can

Unidentified Speaker —

[Speech Overlap] right now hearing on this matter.

Sabri Hazarika — Emkay Global — Analyst

Okay, and have you got a hearing?

Unidentified Speaker —

No, no. Not yet. We are yet to file our appeal.

Sabri Hazarika — Emkay Global — Analyst

Okay, okay, fine. Fair enough. Okay, then. Sir, secondly, one small bookkeeping question. Industrial PNG volumes for the quarter, not industrial commercial, just industrial and also CNG sales in kilogram?

Unidentified Speaker —

PNG sales in kilogram?

Unidentified Speaker —

Okay. See, actually, industrial and commercial sales, if you note down the figure together, it will be better, because we have been doing some reclassification of the customer categories, okay.

Sabri Hazarika — Emkay Global — Analyst

Okay.

Unidentified Speaker —

So, especially this quarter, we will not be able to give separate figure. The industrial and commercial put together is 0.447, okay?

Sabri Hazarika — Emkay Global — Analyst

Okay, sir. Okay.

Unidentified Speaker —

And CNG, 3.459 MMSCMD, you can convert it by a factor of around 1.4.

Sabri Hazarika — Emkay Global — Analyst

It will be 1.4, right? Okay.

Unidentified Speaker —

Yeah, little less than 1.4 or 1.39 also.

Sabri Hazarika — Emkay Global — Analyst

1.39. Okay, sir. Fair enough. Thank you so much.

Unidentified Speaker —

Kg should be around 1.8 kg to 6 kg.

Sabri Hazarika — Emkay Global — Analyst

1.8 to 6, right? Okay.

Unidentified Speaker —

Yes.

Sabri Hazarika — Emkay Global — Analyst

Thanks a lot, yeah.

Operator

Thank you. Next question comes from the line of Abhilasha Satale from Quantum AMC. Please go ahead.

Abhilasha Satale — Quantum AMC — Analyst

Yeah, thank you for giving me opportunity. Sir, we are awaiting this Kirit Parikh Committee report and most probably, I mean, there is a rumor that the APM price — there will be some downside to the APM prices. So, as and when it happens, what will be our strategy? So, will we pass on the benefit to improve discount to the alternative fuels and improve the conversion rate? Or we are in a position to retain large part of the benefit, which will come through us from the cost side?

Unidentified Speaker —

Certainly, if the price comes down, we would like to pass on. How much pass-throughs? That I think we’ll have to wait and watch.

Unidentified Speaker —

Wait for the exact number.

Unidentified Speaker —

Wait for the exact number to decide that. But we will have to balance out between value proposition for the customer to come on to CNG and then take an overall decision. There will be pass-on to some extent. And there — we’ll have to decide based on the number which comes out. As of now, I think commenting on this is very, very difficult.

Abhilasha Satale — Quantum AMC — Analyst

Okay. But in case, sir, if we pass it on, then would we see incremental converging? I mean, as such [Technical Issues] this rate, we are not seeing that substantial convergence has gone down or like that proportion — that scenario is not there. So, if we pass on some of the benefits, then, is there a possibility that we will see increase in conversion rates?

Unidentified Speaker —

I think a period of quarter or two quarters to comment on whether the momentum has impacted due to price or not is very, very difficult because a lot of vehicle bookings might have been done earlier. So, one has to see over a little longer period of time. Certainly, if the gap between diesel and petrol is reduced — if reduces, then it will impact — some amount of impact will be there in case of commercial category, okay? However, right now, we are not seeing that kind of impact, maybe because it will have impact with the [Indecipherable]. So looking at only one or two quarters number, it’s not right to judge, okay.

Abhilasha Satale — Quantum AMC — Analyst

Sure, sir. Thank you.

Operator

Thank you. Next question comes from the line of Yogesh Patil from Centrum Broking. Please go ahead.

Yogesh Patil — Centrum Broking — Analyst

Thanks for taking my questions, sir. I have a couple of questions. First of all, could you please share the breakup of input gas volume in terms of gas pool, contracted LNG and spot LNG? If you could provide it in terms of percentage terms, that would be really helpful.

Unidentified Speaker —

Could you repeat your question? Total gas?

Yogesh Patil — Centrum Broking — Analyst

Yeah. Could you please share the breakup of input gas volume in terms of, first, gas pool; second, contracted LNG; and third, spot LNG?

Unidentified Speaker —

See, as far as requirement for priority is concerned, domestic and CNG — domestic PNG and CNG, we are roughly blending 10% of spot, okay? And as far as industrial and commercial volume is concerned, we are able to cater through a term contract fully.

Yogesh Patil — Centrum Broking — Analyst

Okay. And sir, just how was the — how it has changed compared to the first quarter FY ’23?

Unidentified Speaker —

First quarter, actually, very difficult to say because in the first quarter, there was a pooled gas supply. In fact, in this quarter also, it is slightly difficult to say because up to 15th of August, the blending was done by GAIL and we were supplied at one price, okay? So, our requirement from 16th of May till August was less as far as spot gas is concerned, because APM plus blended RLNG was coming through GAIL, okay? However, there are operational constraints, which have remained in Q1, as well as some parts in Q2 as well. So if you might have contracted something and you do some adjustment of those, then you may see a little bit difference between the actual quantity available and actual quantity utilized through the pooled mechanism. In fact, both these quarters have a mix of pure RLNG [Indecipherable] and some part which is given by GAIL in the pooled mechanism.

Yogesh Patil — Centrum Broking — Analyst

So is it a fair [Speech Overlap]

Unidentified Speaker —

[Speech Overlap] 10% was the requirement and — or 90% of APM gas or APM plus CBG and HPHT was available. Rest was through spot.

Yogesh Patil — Centrum Broking — Analyst

Okay, fair — fair enough. Second one regarding — looking into your historical EBITDA per unit, it was mostly into the double digit, which was close to INR10 per SCM. So in this volatile input gas cost environment, what one could assume for the second half of FY ’23 and the upcoming period FY ’24? Could you please guide us on the EBITDA per SCM side?

Unidentified Speaker —

See, our endeavor will be always to maintain. However, it is difficult to comment on futuristic numbers. It will all depend on how much APM quantity is available? What is the price of spot RLNG? How is the price of diesel and petrol fares during this period? So all these factors put together, we will be able to maintain a reasonable good margin, okay? But crystallizing or pinpointing on numbers will be very, very tough task for anybody.

Yogesh Patil — Centrum Broking — Analyst

Okay, thanks a lot, sir.

Operator

Thank you. Next question comes from the line of Somaiah V from Spark Capital. Please go ahead.

Somaiah V — Spark Capital — Analyst

Thanks for the opportunity, sir. Sir, first question is on the spot

Unidentified Speaker —

Speak a little louder?

Somaiah V — Spark Capital — Analyst

Yeah. First question is on the spot quantity being bought last quarter. On the industrial and CNG front, industrial by and large, you would have got catered by the medium-term contracts. Is that the right understanding? And on CNG, probably for the second half of the quarter, the 4%, 5% shortfall is something that you would have resorted to on spot [[Technical Issues]. Is that the right understanding?

Unidentified Speaker —

I could not hear you or the last sentence. You need to little be, I think, near the mic or louder.

Somaiah V — Spark Capital — Analyst

Yeah. The question pertains to spot LNG buying in the previous quarter, Q2.

Unidentified Speaker —

Q2?

Somaiah V — Spark Capital — Analyst

Yeah. Industrial, more or less, we would have been sufficient with the mid-term contracts that we have. Just wondering if that’s the right understanding. And second, in terms of the priority sector for us, the CNG part, the shortfall would have been to the extent of, say, 4%, 5% and that too from, say, mid of August. Is that the right understanding?

Unidentified Speaker —

Yeah. You’re right, because up to mid of August, the blended gas was supplied by GAIL and the quantity increased after August.

Somaiah V — Spark Capital — Analyst

Thanks, sir. Second question. The medium-term contracts that you are referring to the 0.66 MMSCMD that we have, so the balance term for all these three contracts is seven to eight months. Is that right — I mean, though the contract period is different, one is 1 year. The other two are five years, but the balance remaining period is only seven to eight months.

Unidentified Speaker —

Correct. Up to around, I think, ‘June 23, the

Somaiah V — Spark Capital — Analyst

So, all three contracts will get over by June ’23?

Unidentified Speaker —

No, no, no. no. Other 2 contracts still have a good time. I do not remember the dates. Only the one contract which was midterm is getting over around June 2023.

Somaiah V — Spark Capital — Analyst

And what would be the volume of this contract that is getting over in June ’23?

Unidentified Speaker —

Contracted quantity should be around 1.5 lakh.

Somaiah V — Spark Capital — Analyst

1.15?

Unidentified Speaker —

Yes, yes.

Somaiah V — Spark Capital — Analyst

0.15 out of the 0.66.

Unidentified Speaker —

Yeah.

Somaiah V — Spark Capital — Analyst

Got it, sir. Sir, the — third thing, I mean, we have seen, in terms of gas cost increase, be it on APM front or the lower allocation or FX, this has happened between, say, September into October. So, we have increased close to INR9, INR9.5 so far. I mean, when we increase these prices, is there anything that we keep thinking in terms of the petrol spread versus CNG? And is there a point which [Indecipherable] slightly after which we feel, okay, probably [Indecipherable] the spread is too narrow and it can have a rub-off effect on the volume? Is this something that we think and what the number would be?

Unidentified Speaker —

There is no such hard number. What we have observed is relatively high price increases, which we have taken recently is that the new vehicle addition has slightly tapered off compared to, let’s say, Q1. So definitely, there is a thought in the mind of the consumer that should we wait for some more time before buying a CNG vehicle or what? So the vehicle addition has not stopped. But from about 19,000, I think Mr. Patel had said, 19,000 vehicles, which came on in Q1, Q2, it was only about 15,000 vehicles.

Unidentified Speaker —

Now that is a trend which, ideally, we don’t like to see because we are chasing volume growth here. So, we are hopeful that going forward, with gas prices hopefully softening a bit, again, the momentum on CNG volume addition will again pick up pace. Growth is still there, maybe not at the previous quarter or previous half year rate. That is why we — in our guidance, say, we talk of a 5-year kind of a CAGR at quarter-to-quarter or short-term variations. We don’t give too much material significance.

Somaiah V — Spark Capital — Analyst

Got it, sir. One last question on the industrial and commercial prices. I mean, you did mention that INR60 to INR66 around that rate. I mean…

Unidentified Speaker —

Could you be a little louder, please?

Somaiah V — Spark Capital — Analyst

On the industrial and commercial prices, you did mention that INR60 to INR66 is the pricing currently, I mean for Q2. How has it been trending [Speech Overlap]

Unidentified Speaker —

Q2 — in Q2, not currently. I said in Q2.

Somaiah V — Spark Capital — Analyst

Yeah. How has it been trending in the last few quarters? I mean, compared to the alternate fuels, if you could just give some color on that.

Unidentified Speaker —

Yeah. As I said earlier, our pricing is linked to alternate fuels. Q1 was very good comparatively compared to Q2, okay? And let us see how these alternate fuels move going forward. And based on that, there will be realization, though we do charge premium over the alternate fuels to maintain our margins to some extent.

Somaiah V — Spark Capital — Analyst

What would be the industrial and commercial prices currently, if you can help us?

Unidentified Speaker —

Currently, I think basic price should be in the range of INR60 to INR65.

Somaiah V — Spark Capital — Analyst

So, largely flat versus Q2.

Unidentified Speaker —

But it keeps on changing month-on-month.

Unidentified Speaker —

There are quite a few segments within the industrial and commercial bucket also, where typically the price to the customer is linked to the — predominantly use alternate fuel by that category of customer. So, we have customers who are indexed to LPG also, we have customers who are linked to large bulk industrial fuel also. So it is a mix. When you say industrial or commercial, it is not just one category. There are subcategories in that. And there is a variation in price depending on how the alternate fuel for that category moves.

Unidentified Speaker —

The number I gave is average across all the categories.

Somaiah V — Spark Capital — Analyst

Understood, sir. Understood. Thank you.

Operator

Thank you. Next question comes from the line of S. Ramesh from Nirmal Bang Equities. Please go ahead.

S. Ramesh — Nirmal Bang Equities — Analyst

Yeah. Thanks for the follow-up. So, if you’re looking at the sensitivity of the CV [Phonetic] segment, what is the percentage discount of CNG compared to diesel, below which your conversion of CVs will possibly not be as visible? Is there a number you can share with us because that’s possibly one segment which is growing, especially, because if you’re seeing the potential for a correction in diesel spreads and international prices, how would you see that play out, say, in the next one to two years based on your understanding on the [Indecipherable]?

Unidentified Speaker —

As regards commercial vehicles, there is no one number. We can’t say if there is a 10% discount to diesel, we’ll keep selling, because we need to understand that the vehicle categories are also quite diverse, ranging from a small commercial vehicle to now even heavy commercial vehicles are coming OE-fitted with gas engines. And the payback period differs for different class of customers, depending on not only the spread between CNG and diesel selling prices, but also the spread between the initial on-road cost of the vehicle and most importantly, how many kilometers that vehicle runs on an average in a day or a month. So the number is — it varies for different classes of customers.

For a large transporter, who runs a few 100 kilometers per day, maybe — he may be able to work with a 10% kind of a discount to diesel. But for a, let’s say, a small commercial vehicle, where the on-road cost difference is not much, but — however, the running per kg also may not be that much, so the number could be slightly lower. So, there is no one number for the whole commercial vehicle category as such. It is more of a range. And we are conscious of this fact that we need to keep that customer sentiment towards CNG continuing because the other good thing is now a lot of commercial vehicle OEs are coming with factory-fitted CNG. They have already come in with the models, which is actually large need, which was there in the market, because before that, the transporter had to rely on retrofitting, which was not always reliable in terms of quality and cost. On an overall basis, if you see, the trend is positive for CNG at the expense of diesel.

S. Ramesh — Nirmal Bang Equities — Analyst

Sir, on a similar line of thought in terms of the competitiveness of CNG versus petrol and diesel, you’ll realize that it’s come down. So, is there a threshold below which you’ll have to cut prices and take some sacrifice on margins, say, in the next, say, six months to 12 months and then eventually, over a period of time, try to make up? What is the thought on that?

Unidentified Speaker —

Well, the overriding priority remains to steadily aggregate volumes in the long term. Now, we — as far as petrol goes, currently also, there is — we don’t foresee any material challenge on the customer value proposition front because even at today’s prices, CNG is turning out to be more than 40-plus percent economical compared to petrol, which is a huge incentive. Of course, private car owners do not tend to log in hundreds of kilometers per day which impacts the payback, but then 40-plus percent discount is a good payback for anybody who runs even 60, 70 kilometers a day. And again, as I said before, with factory-fitted CNG variants now coming out, more and more customers are preferring to take CNG.

Other thing encouraging customers is CNG now is almost a pan-India phenomenon. Previously, let’s say, three, five years back, CNG used to be considered by many customers and OEs also as a Maharashtra, Gujarat or Delhi centered phenomenon. But now with the number of GAs licensed out and new and new entities opening up CNG stations all over the country, there is this momentum towards CNG. And long term, we will see a lot of growth and value proposition there.

Operator

Thank you. Mr. Ramesh, we request that you return to the question queue for the follow-up questions. Before we take the question, a reminder to all the participants, please restrict yourself to one question. The next question comes from the line of Varatharajan Sivasankaran from Antique Limited. Please go ahead.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Thanks for the opportunity, again, sir. Looking at acquiring domestic [Indecipherable] now that RIL as well as ONGC are planning to increase production and there will be auctions from both parties, so would you be looking to bid? And if at all you are going to bid, I was just trying to understand, since your volumes grew on a continuous basis, what would be the volume you’d effectively bid for? Would it cover one quarter, one year or two years? And how do you manage this entire volume at which you want to bid under the term of the contract?

Unidentified Speaker —

ONGC volume. You are talking about ONGC new volumes?

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Yeah. ONGC as well as RIL and new volumes come, if you were to bid, what would be — how will you bid in terms of the volumes? Would you bid for a one-year coverage or two-year coverage? And what will you do in the interim since the volume will be too high for you? Will you be allowed to trade it out for the time being? How do you work that out?

Unidentified Speaker —

To a large extent, the term of the contract is determined by the seller.

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

So, then how do you match your volume in terms of how it grows and

Unidentified Speaker —

Reliance had made the term [Indecipherable] parameter. But off late, we are not seeing that. And we will take a call on what we think is our volume requirement estimate and accordingly, as our volumes keep growing incrementally, in case domestically produced gas does not match up with that volume ramp-up, we’ll keep buying tranches of medium-term gas or something like that as long as we have a certainty on volume uptake. And the last bid balancing, we’ll tend to do on reasonable [Indecipherable] basis, spot gas [Technical Issues]

Varatharajan Sivasankaran — Antique Stock Broking Ltd — Analyst

Fair enough, sir. Thank you.

Operator

Thank you. Next question comes from the line of Ankur Agarwal. Please go ahead.

Ankur Agarwal — PhillipCapital India Private — Analyst

Thank you for the opportunity, sir. I just wanted to check regarding the margins for the commercial and industrial segment. I mean, we understand that pricing is under — pricing has come off from the first quarter currently and — but Brent prices have also come off during that time. So, are you seeing some ease in the input gas cost as well? And how are the margins behaving on the C&I side, if you could just help us understand that?

Unidentified Speaker —

Compared to Q1, the margins are under pressure as far as commercial and industrial is concerned because of the realization mainly and gas costs, as well as exchange rate increase during this quarter. Even going forward, exchange rates may put pressure, and we’ll do watch out for gas costs, how indexes remain and how spot prices remain going forward.

Ankur Agarwal — PhillipCapital India Private — Analyst

And sir, compared to second quarter, I mean, if we are to talk about currency, how are you managing?

Unidentified Speaker —

Current quarter, I think, let us wait for some time. Maybe it is more or less same as of now compared to Q2. But we’ll have to watch out for exchange rate, as well as the indexes to which gas cost is linked and also spot price.

Ankur Agarwal — PhillipCapital India Private — Analyst

Okay. And sir, just one clarification. You mentioned that the — currently, you’re getting blended gas at $8.75 per MMBTU. Is that correct?

Unidentified Speaker —

When I said blended, it is APM plus CBG and HPHT. No spot RLNG or market price gas in that.

Ankur Agarwal — PhillipCapital India Private — Analyst

Okay. On top of that, you have to — for the priority segment, you have to add around 5%, 6% to 10% of spot LNG as well, right?

Unidentified Speaker —

In the range of 7% to 10%, yes.

Ankur Agarwal — PhillipCapital India Private — Analyst

Right, right. Okay. I think that’s helpful, sir. Thank you for this.

Operator

Thank you. Due to time constraints, we have reached the end of question-and-answer session. I would now like to hand the conference over to Ankur Agarwal for closing comments.

Ankur Agarwal — PhillipCapital India Private — Analyst

Thank you to the participants. I would like to thank the management of Mahanagar Gas Limited for taking out the time for this interactive session. And I would also like to thank all the participants who joined on the call today. Thank you all. Over to you, Ranju.

Unidentified Speaker —

Thank you very much.

Operator

[Operator Closing Remarks]