MGL says industrial volumes can rebound above 10%

Mahanagar Gas Limited said industrial gas volumes can rebound by more than 10% once gas availability and fuel-linked pricing return to normal, after regasified liquefied natural gas, or RLNG, supply restrictions of around 70% affected deliveries in both the first and second quarters. Management said contracted daily customer demand had increased rather than fallen.

Why did MGL's industrial gas volumes decline?

MGL said industrial volumes declined because RLNG availability was restricted and higher alternative-fuel-linked prices reduced consumption, not because customers cancelled contracted demand. An analyst cited a roughly 7% fall in combined piped natural gas, or PNG, commercial and industrial volumes in both quarters, but management said the result was concentrated in industrial users rather than small commercial customers.

Management said the supply restriction was in the range of 70% during both the first and second quarters, which limited industrial deliveries amid the West Asia crisis. It also said higher Brent-linked fuel costs made some customers cautious about consumption, while the company itself reduced supply during the first quarter because of the restriction. Industrial and commercial gas is supplied through RLNG term contracts, mainly linked to Henry Hub prices with a smaller Brent-linked component.

MGL said its customers' signed daily contracted quantity, or DCQ, had not declined and had increased. That distinction is central to management's outlook: it described the volume shortfall as constrained supply and reduced offtake during a high-price period, rather than a loss of contracted industrial demand. Management said normalisation of both availability and customer consumption could produce a more-than-double-digit rebound in industrial volumes.

Is MGL's commercial PNG demand still growing?

MGL said small commercial PNG volume grew by around 9% to 10%, even as industrial deliveries were constrained. The small commercial category includes restaurants that otherwise use 19-kilogram liquefied petroleum gas, or LPG, cylinders, and management said this segment was not subject to the same volume decline as larger industrial users.

Small commercial customers account for about 20% to 22% of industrial-and-commercial volume, with the balance coming from larger industrial customers, according to MGL. This mix means industrial curtailment has a larger effect on the combined category than the growth in restaurant demand. In a separate company-level comparison, management said small commercial volume had grown by almost 12% in the latest half versus the prior half.

MGL resets industrial-and-commercial prices monthly under alternative-fuel-linked formulas. During the second quarter, management said LPG-cylinder prices rose by more than 25% from the first quarter, while low-density oil, or LDO, and furnace oil, or FO, prices fell by about 6% to 15%. It said commercial realisations therefore increased for LPG-linked customers, while prices declined for some larger customers linked to FO or LDO.

What does MGL expect for overall volume growth?

MGL said company-level sales volume grew around 6.75% in the latest half compared with the previous half, and said the rate would have been higher without the industrial supply cut. Management said compressed natural gas, or CNG, and domestic PNG each grew by nearly 9.5%, showing that the slower company-wide result reflected industrial constraints rather than a broad decline in consumption.

Management told analysts that growth would be more than 8% to 9% in both FY27 and FY28 if gas availability and normal customer consumption were restored. This is management's conditional outlook rather than a fixed forecast, because it depends on RLNG supply and fuel pricing. MGL said it assesses conditions every fortnight and every month as supply restrictions and gas prices change.

MGL did not provide a firm FY27 or FY28 margin forecast because it said several inputs remained volatile. Management said second-quarter unit earnings before interest, tax, depreciation and amortisation, or EBITDA, were around Rs 6.77 per standard cubic metre, or SCM. It said a Rs 1 to Rs 1.5 change, if other conditions remained unchanged, could make Rs 7 per SCM achievable, but did not commit to a pricing action.

What could support MGL's gas availability?

MGL said it has signed 40,000 million British thermal units, or MMBtu, of supply that is already flowing, although it did not disclose the counterparty. Management said the contracts include a higher Henry Hub-linked quantity and a smaller Brent-linked quantity. Its strategy is to sign term contracts in smaller tranches as the sales base stabilises and use spot purchases for peaking requirements.

The company said it has been contracting more term LNG than its requirement during the current period because supply restrictions have ranged from 70% to 80% at times. Management said many of these contracts have take-or-pay thresholds, allowing it to use contracted volumes while retaining some ability to switch between term and spot supply according to prices. This procurement approach is relevant to industrial deliveries because the segment is fully supplied through RLNG term contracts.

MGL also expects more high-pressure, high-temperature, or HPHT, gas through a revised allocation formula, although that gas supports CNG rather than directly resolving industrial RLNG restrictions. Under the old entity-count method, MGL said it received about 5,000 to 6,000 MMBtu per day, or 4.5% to 5% of supply. Under full implementation of the consumption-based formula, it expects around 16,000 to 18,000 MMBtu per day if Indian Gas Exchange spot volumes remain similar.

How will the HPHT allocation change be phased in?

MGL said the new HPHT formula will be fully based on prior CNG and domestic consumption from July onward. The transition assigns 25% of allocations to the new formula in November and December, 50% in January through March, and 75% in April through June. The remaining allocation in each transition period continues to use the number of legal entities bidding for gas.

Management said its HPHT allocation could initially rise to around 7,000 to 8,000 MMBtu per day, from 5,000 to 6,000 MMBtu per day, before increasing by about 2,500 MMBtu during successive phases. This progression assumes monthly HPHT volumes offered through the Indian Gas Exchange, or IGX, stay in the same range. It also depends on how suppliers structure term contracts that may extend beyond June.

The allocation shift reflects MGL's larger priority-segment consumption base. Management illustrated that an entity selling 3.5 million units of CNG and 0.7 million units of domestic gas would receive more under the revised formula than an entity selling 2 million units. MGL said its own APM and new well gas supply available for CNG was broadly split 50:50, within the domestically produced portion of its sourcing mix.

Conclusion

MGL's industrial-volume outlook rests on the view that supply constraints and fuel-linked prices, rather than lost DCQs, caused the recent decline. The company reported 6.75% sales-volume growth in the latest half versus the previous half, while CNG and domestic volume each rose nearly 9.5% and small commercial volume increased by around 9% to 10%. That comparison supports management's assertion that industrial constraints lowered the overall growth rate.

The next measure to watch is whether RLNG restrictions ease from the 70% range disclosed for the first and second quarters and whether industrial customers restore normal offtake under their existing DCQs. Management's more-than-8% to 9% FY27 and FY28 company-growth outlook depends on that normalisation, while the HPHT allocation formula is scheduled to become fully consumption-based from July, subject to available IGX volumes.