Mahanagar Gas Navigates Q2 FY26 with Robust Volume Growth Amidst Margin Headwinds

Mahanagar Gas Limited, a prominent city gas distribution player, reported its Q2 FY26 consolidated financial results, showcasing a resilient performance marked by significant volume growth. The company achieved revenues of 2,049.33 crore rupees, reflecting a strong 14.73% year-on-year increase. However, the quarter saw a compression in profitability metrics, with EBITDA at 337.95 crore rupees and PAT at 193.37 crore rupees, both experiencing a decline compared to the previous quarter and the prior year's H1 figures. This performance reflects the dynamic interplay of rising gas procurement costs and strategic volume expansion initiatives.

During Q2 FY26, Mahanagar Gas demonstrated robust operational growth across its core segments. The overall average gas sales volume increased by 9.22% year-on-year to 4.593 MMSCMD. CNG volumes, which constitute the largest share, grew by 2.19% quarter-on-quarter to 3.255 MMSCMD. Domestic PNG sales also saw a 1.69% sequential increase, while industrial and commercial (I&C) volumes surged by 8.45% quarter-on-quarter. The company's strategic focus on expanding its customer base is evident, with 53,566 new domestic households connected and 116 new I&C customers added during the quarter. This consistent growth underscores the underlying demand for natural gas despite external pressures.

Navigating Cost Pressures and Strategic Expansion

The primary challenge for Mahanagar Gas in Q2 FY26 was the significant increase in gas procurement costs, which impacted margins. Factors contributing to this included a higher weighted average cost due to increased reliance on spot RLNG and HPHT, a reduction in APM and NWG allocations compared to Q1, and an adverse impact from exchange rate fluctuations. The management transparently acknowledged these pressures, noting that the exchange rate alone added over INR0.50 per SCM to costs. Despite these headwinds, the company's H1 EBITDA margin stood at INR10.13 per SCM, indicating resilience.

To mitigate cost volatility and drive future growth, Mahanagar Gas is pursuing several strategic initiatives. The company is actively converting its spot gas purchases into long-term contracts, with a substantial HPHT long-term contract expected by January 2026. This move aims to stabilize procurement costs and improve margin predictability. Furthermore, MGL is investing heavily in infrastructure expansion, adding 87.4 kilometers of steel and PE pipeline and 14 new CNG stations in Q2, bringing the total to 485 stations. A significant project includes commissioning a large CNG station in Wadala with over 50 dispensing arms by March-April next year, designed to cater to heavy commercial vehicles and reduce queuing times.

Future Outlook and Strategic Focus

Mahanagar Gas remains optimistic about its future trajectory, guided by a clear focus on volume growth and strategic investments. The management has provided guidance for EBITDA margins to be in the range of INR8.5 to INR9 per SCM for Q3 and Q4. The company expects to maintain its volume growth momentum, targeting 10% or more for the full financial year. Capital expenditure plans for FY26 are robust, with an allocation of INR1,100-1,200 crore rupees, including investments in new initiatives like EV charging and battery manufacturing.

The company is also proactive in stimulating demand through various schemes, such as a year-long 'fleet program' for CNG vehicles and MOUs with bulk consumers. While acknowledging the long-term potential impact of electric vehicles, MGL believes its cost-effective and environmentally friendly CNG offering, coupled with continuous infrastructure development, will ensure sustained growth. The amalgamation with Unison Enviro Private Limited is also expected to yield tax benefits, further strengthening the company's financial position. Mahanagar Gas is strategically positioning itself for continued leadership in the evolving energy landscape, balancing immediate challenges with long-term vision and disciplined execution.