Trying to ramp capex up, which was in the range of Rs 200 crore-Rs 250 crore: Rajeev Mathur, Mahanagar Gas

In an interview to ET Now, Rajeev Mathur, MD, Mahanagar Gas, says that his firm is planning to reach every society in Mumbai and how the service will be of great convenience. He also states that the firm is trying to ramp up their capex. Edited excerpts:

ET Now: Well, the way we believe one should really talk about your company is that it is a utility which has a monopoly. It is a utility which has a stable growth of return of about 8% to 10% and it will see this return for next five years. So is my assumption right?

Rajeev Mathur: Well, we are aiming to achieve that.

ET Now: And how exactly will you achieve that? Are you betting on the fact that Mumbai gas consumers are very underpenetrated and the consumption patterns will continue to grow and shift?

Rajeev Mathur: So, it is happening is that we are now increasing our penetration levels in the city of Mumbai through expanding our network. We are setting up more CNG stations in the city.

We are trying to reach every society, every new building block that is coming up and we are quite confident that people would look at it as a very positive step in terms of providing them with a service which is uninterrupted, available on tap and they do not have to bother to order the cylinders and things like that.

It is a great convenience for the people of Mumbai and we are getting a lot of support. Our objective is to try and get more and more customers unfold and the average that we have been doing in the past is about 7% to 8%. We intend to accelerate that going forward.

ET Now: Basically, this issue is an OFS wherein you promoters are selling and nothing is really coming into the company. What we are trying to gauge here is – is MGL fully funded with all its capex and will you not be requiring any more funds in the near future?

Rajeev Mathur: The kind of financials that we have in the last couple of years. We have been generating about Rs 500 to Rs 600 crores annually. Our capex has been in the region of Rs 200 crore-Rs 250 crores and we are trying to ramp it up.

But we believe we have enough funds to cater to all our expansion plans in the next couple of years.

ET Now: Just trying to understand how is the company managing to secure gas at such a lower cost?

Rajeev Mathur: We get 85% of our gas through an allocation by the government for the priority sectors which is CNG and for PNG for household and that is price through a formula. As per the formula, we get it at three dollar six cents to five dollar seventy-five cents and the international market also is quite subdued in terms of pricing.

For the rest of the sectors like industries or commercial sector, we are getting gas at about $5 to $6 a MMBtu but the domestic gas is priced lower than the international price.

ET Now: So we have seen the IGL’s monopoly in the NCR region has got challenged, is that a threat for Mahanagar Gas as well, I mean, how exactly is your monopoly status protected?

Rajeev Mathur: Well we have laid such kind of an infrastructure in the city of Mumbai I do not think that can be easily replicated, that is point number one. But two, we are not fighting shy of any competition. If there is anyone who can bring gas cheaper and deliver more value to the customers he is welcome, but we do not see so much depth in the Indian market, the availability of gas is limited and the alternate is subsidised LPG which people are anyway having and there is enough opportunities for other players to penetrate in other cities and create a market base for themselves.

As far as we are concerned, even though we maybe a so called monopoly but we are in competition with alternate fuels, the customers have a choice and therefore we have value to deliver to the customers in terms of pricing, product and the convenience that we provide. And we believe that we are second to none in this and therefore we will continue to provide the value added services in terms of pricing, in terms of reliable product to our customers in Mumbai.

ET Now: How dependent are you on government policies and regualations?

Rajeev Mathur: Well, today the government policies are very conducive to this sector, our belief is government is committed to a cleaner environment, people are talking more and more about pollution and the ill effects of that in bigger cities therefore naturally so any government, any policy would be looking towards a cleaner environment using better fuels, cleaner fuels and natural gas is the answer. And therefore we believe the government policies are also going to remain conducive to the sector where we operate in.

ET Now: Can you give me a broad sense of how much of your total profit is coming from Mumbai and how much is coming from areas surrounding Mumbai and is there a thought in place that you want to actually expand outside Maharashtra, tap other metros?

Rajeev Mathur: So today two-third of our business is out of Mumbai, one-third is from the adjoining areas. As we go along, we will look at other opportunities very closely because we have the requisite experience, we have the resources and we will look at replicating that in other cities should the opportunities arise.

ET Now: Are you prepared to take the risk of expanding to other geographies which could have an impact on you balance sheet because you will have to invest and build infrastructures if you expand outside Mumbai and outside Rajgarh?

Rajeev Mathur: So we will look at all such opportunities where the financial threshold passes the test of what we have set for ourselves and we believe in giving value to our shareholders therefore we will look at opportunities only where we find financial viability is there in terms of our financial threshold levels.

ET Now: What is the reason for falling volume growth because if one maps what the trend has been it was about 12% in FY12 and now it is close to 2%, what is the reason for this fall according to you?

Rajeev Mathur: Well, you know the crude prices have behaved in very odd manner, they were over $100/barrel and they came down to $30 and as you are aware, we are in completion with subsidised LPG. The attractiveness of any fuel goes more if the alternate product is priced higher or becomes cheaper or expensive. And in the last two years we have been facing competition, both in the transport sector with diesel, petrol and transport fuels prices coming down so the perceived attractiveness was probably lower in the past but as the prices look up we are quite confident our long term growth story will remain and people will get more and more attracted towards this fuel.