Natural Gas

Mahanagar Gas Ltd. v/s Indraprastha Gas Ltd.


Mahanagar Gas Ltd.

Mahanagar Gas Ltd. (MGL) is one of the India's leading Natural Gas distribution companies. MGL is engaged in supplying natural gas in Mumbai, and is presently the sole authorised distributor of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) in Mumbai, its adjoining areas and Raigad district in Maharashtra, India.

Mahanagar Gas Ltd was incorporated in the year 1995, as a Joint Venture between Gas Authority of India Ltd (GAIL), BG Asia Pacific Holdings Pte. Ltd. & Government of Maharashtra.

Highlights over the years

1995- Incorporated as a Joint Venture between GAIL & BG Asia Pacific Holdings Pte. Ltd.

2005- Gets authorization for Thane & its adjoining areas.

2012- Marketing exclusivity for Mumbai ended.

2014- Marketing exclusivity for Mumbai’s adjoining area ended.

2015- April: Royal Dutch Shell acquired BG group for $70 billion.

2016- IPO came, to raise about Rs. 1000 crores.

2017- Compulsory convertible Debentures issued to Government of Maharashtra were converted into equivalent shares, thus increasing the stake from 0.5% to 10%.

2018- BG Asia disinvested 8.5% stake in April; further disinvested 14% stake in August.

2020- End of Infrastructure exclusivity for Mumbai region.

Indraprastha Gas Ltd.

Incorporated in 1998, Indraprastha Gas Ltd. (IGL) is the sole City Gas Distribution (CGD) company for Natural Gas in the National Capital Territory (NCT). It was incepted following a Supreme Court directive to GAIL to set up CNG infrastructure in the NCT. It caters to consumers in the domestic, transport, industrial and commercial sectors.

Highlights over the years

1998- Company incorporated by Bharat Petroleum Corporation Ltd (BPCL) & GAIL.

1999- Company took over Delhi’s City Gas Distribution (CGD) project from GAIL.

2005- Company allotted Noida & Ghaziabad region.

2008- Company gets Gurgaon & Faridabad region, but was taken over by Haryana City Gas Distribution Ltd. & Adani Enterprises Ltd. respectively.

2010- Supreme Court allowed IGL to carryout activities in Ghaziabad geographic area.

2015- Maharastra Natural Gas Ltd. became associate company.

2017- Permission from Director of Industry & Commerce Haryana to lay pipeline in Gurugram area, between Sohna Road & NH-8 of Gurugram.

  • Got Authorisation for CGD in geographic area of Rewari (Haryana).

2018- February: IGL got authorization for CGD in Karnal (Haryana).

  • September: IGL won geographic area of Meerut (except already authorized), Muzaffarnagar & Shamli District.
  • December: Supreme Court gives no objection to IGL, for the entire geographic area of Gurugram from Haryana City Gas Distribution Ltd. on going concern basis.

Comparative Points

Shareholding Pattern

The Promoters of Mahanagar Gas i.e. GAIL & BG Asia Pacific Holdings Pte. Ltd. hold about 42.5% stake, while the promoters of Indraprastha i.e. GAIL & BPCL hold 45% stake together.

Promoters, Institutions and non institutions share holding in IGL and MGL

Foreign Portfolio Investors

Foreign Portfolio Investment in Mahanagar Gas Ltd. is 21.61% and in Indraprastha Gas Ltd. is 19.93%. Foreign Portfolio Investors holding more than 1% shareholding are:

FPIs having more than share holding 1% in IGL and MGL

Geographic Distribution

MGL currently has 3 Geographic Areas in its kitty, while IGL has 8 areas. The marketing exclusivity available to MGL & IGL ended in the year 2012 & 2011 respectively. Still there is no other company that has started to market in these geographies. This means that both the companies are still enjoying marketing exclusivity despite the exclusivity ending officially.

MGL’s infrastructure exclusivity is going to end in the year 2020, but the company is hopeful of getting a rollover exclusivity period of another 10 years. While the exclusivity period of IGL for the Delhi NCR shall end in the year in 2023.

Location wise authorisation detail for IGL and MGL that in which year each player got authorization for which location

Subsidiary/Associate Companies

IGL invested in two other City Gas Distribution companies, Central UP Gas Ltd. (CUGL) & Maharashtra Natural Gas Ltd. (MNGL).

While CUGL works in the geographic area of Uttar Pradesh, MNGL is working in the Pune region. IGL & MGL both are considering other options for Mergers & Acquisitions.

MGL has no subsy/associate, IGL has 2 subsidiaries CUGL and MNGL

Sales Breakup

The City Gas Distributing companies deal in primarily Natural Gas, which is further classified as Liquid Natural Gas (LNG) also called as Piped Natural Gas (PNG) & Compressed Natural Gas (CNG). While CNG is used for the Transport sector, the PNG is used for Domestic purposes, Industrial & Commercial use.

Users of Natural Gas

Users of natural gas include domestic, Industrial, commercial and transport users

While IGL sells some of its natural Gas to other CGDs also, but MGL does not do so.

Segment wise sale of IGL and MGL - segments: CNG, PNG, Industrial/commercial customer and sale to other CGDs

Performance per Standard Cubic Meter (SCM)

Gross Realizations per scm

Indraprastha Gas was charging higher amounts up till F.Y. 2014 and the same can be witnessed from the chart below. In February 2014, IGL cut its prices on CNG by Rs 14.90/- per kg and on PNG by Rs 5/- per scm. These price reductions were the first in 6 years. While on the other hand, MGL has been keeping similar price over the years.

MGL has managed to grow its Gross Realizations per scm at a CAGR of ~3%, on the other hand, in IGL there has been a de growth of ~1% over 5 years.

Per SCM gross realizations from the year 2013 to 2018 of IGL and MGL

Operating Expense per scm

Operating expenses include the laying, repairing and building of pipeline infrastructure and other routine expenses. With a large number of geographic areas, the operating expense per scm of Indraprastha is greater than that incurred by Mahanagar.

Most of the Operating expense in case of MGL is incurred during the second half of the year, due to monsoons. Hence, 2nd half is heavy on MGL as far as Operating expenses are concerned.

The Opex per scm for MGL has grown at a CAGR of 8%, while that of IGL has declined by 1%, over 5 year period.

Mahanagar Gas Ltd and Indraprastha Gas Ltd year wise operating per SCM from 2013 to 2018

Margins per scm

  -Gross Margin per scm: The Gross Margin per scm of MGL has grown at a CAGR of 6%, while that of IGL has grown at a CAGR of 5%.

The Gross Margin per scm of Mahanagar Gas Ltd has grown at a CAGR of 6%, while that of Indraprastha Gas Ltd has grown at a CAGR of 5%.

-EBITDA Margin per scm: The EBITDA per scm of MGL has grown at a CAGR of 4.3% and that of IGL has grown at ~1%.

The EBITDA per scm of Mahanagar gas Ltd has grown at a CAGR of 4.3% and that of Indraprastha Gas Ltd has grown at ~1%.

Pipeline (in Kms)

The CGD’s need to lay their own pipelines for providing connections. There are 2 types of pipeline, the Medium-density polyethylene (MDPE) that is laid underground and the steel galvanised pipes that are laid over the ground level for providing individual connections to the users.

IGL owns & operates a consolidated pipeline of about 11000 kms while MGL’s pipeline is around 5000 kms. Despite about twice the difference in the length of the pipeline, MGL has more domestic, industrial & commercial clients.

Pipeline in Kms of Mahanagar Gas Ltd and Indraprastha Gas Ltd figure from 2013 to 2018

(Data for Mahanagar Gas Ltd has been given from the year when it got listed as per true published reports)

CNG Stations

CNG distribution and selling contributes nearly 75% to total revenue of these companies. These companies either have company owned & operated pumps, or CNG pumps owned & operated by III party (like Oil marketing companies, individuals etc).

With the ever increasing prices of Petrol & Diesel, Government pushes for alternate fuels and due to cost economies of using CNG as vehicle fuel, more & more number of vehicles are getting converted into CNG. In Delhi region, around 4000 vehicles are getting converted to CNG in a month, whereas, in Mumbai region, 6000 vehicles are getting converted into CNG as per recent reports.

Number of CNG stations by Mahanagar Gas Ltd and Indraprastha Gas Ltd from 2013 to 2018

(Data for Mahanagar Gas Ltd has been given from the year 2015 as per true published reports, data not given for the period when it was unlisted)


PNG clients are the priority sector as per the Government of India, they ought to have continuous access to the Gas and that too at convenient price. Although, neither the Government nor the regulatory board PNGRB controls the final price being charged by the CGD from the customer. But the government through its representative GAIL provides access to the domestically procured natural gas at the prices administered by it.

MGL has more clients than IGL, implying that MGL is more penetrated & at the same time shows the potential of IGL to further penetrate into geographies.

Year wise number of PNG clients of Mahanagar Gas Ltd and Indraprastha Gas Ltd from 2013 to 2018

(Data for Mahanagar Gas Ltd has been given from the year 2015 as per true published reports, data not given for the period when it was unlisted)

Amongst the customers, CGD’s have those industrial/commercial customers whose natural gas requirement is upto 50,000 scm per day. Any industry with requirement between 50,000 to 100,000  scm per day has a choice of sourcing the same through GAIL or CGD. But industries with requirement above 100,000 scm per day are required to source through GAIL only.

The prices of gas for the Industrial/ Commercial sector are not administered by the government. For these sectors, the CGD needs to make their own arrangements and procure gas through RLNG stations (Regasified Liquid Natural Gas) at the market price. The CGD either enter into long term contracts or buy it at Spot rates.

Industrial and commercial clients year wise data of Mahanagar Gas Ltd and Indraprastha Gas Ltd from 2013 to 2018

Elements of Expenditure

Raw material cost of both the companies has remained same over the years, because the gas is supplied at same rates. Also, Petroleum and Natural Gas Regulatory Board (PNGRB) allots a fixed amount of gas quota just for the purpose of meeting the requirements of the priority sectors from domestic sources.

The Employee cost of MGL is higher, whereas the Manufacturing expenses of IGL are higher.

Average common size statement of expenditure of Mahanagar gas Ltd and Indraprastha Gas Ltd average of last 5 years till year 2018

(As a percentage of total expenditure)

Earnings Margin

Owing to no regulation over final price to be charged & sole distributor status of Natural Gas in their respective geographies, MGL & IGL have maintained huge margins over the years.

The margins of CGD’s are primarily dependent on the following factors:

  1. APM (Administered Price Mechanism) gas cost- This cost is dependent on the weighted average price of gas in 4 global benchmarks i.e. US’s Henry Hub, UK’s NBP, Canada based Alberta gas & Russian gas.
  2. Exchange Rate: Since the cost of gas is in terms of US Dollars.
  3. RLNG (Regassified Liquid Natural Gas) spot price: Entire industrial & commercial requirement of gas (which is approximately 15% of total gas sold) is sourced through RLNG. Spot price at which such RLNG is acquired impacts the margins.
  4. Alternate Fuel Prices: If the price of alternate fuel is cheaper, than the CGDs need to reduce their margins by lowering the fiinal price. Because Natural Gas is benchmarked to alternate fuel prices.
  5. Operating Expenses: The cost of laying, the amount of capex incurred, all impact the margins. Each year considering 7% inflation, the operating expense is bound to increase.

Year wise EBITDA margin of Indraprastha Gas Ltd and Mahanagar Gas Ltd from 2013 to 2018

pat margin.png

Free Cash Flow

The business model of CGDs is such that they generate huge amount of cash, have negative working capital cycles & despite a lot of Capital expenditure for the purpose of laying pipeline, the companies remain cash rich.

Free Cash Flows in Rs. cr. of Indraprastha Gas Ltd and Mahanagar Gas Ltd from year 2013 to 2018


Both the companies apart from generating huge cash inflows, are Debt free. But may be in the upcoming future, IGL needs to borrow to meet its growing capex needs (for new geographies).

Strengths of the Players

Monopoly Position

The CGDs get exclusivity benefits from Petroleum and Natural Gas Regulatory Board (PNGRB) in the form of Marketing Exclusivity which is for a period of 8-10 years depending upon the contract terms & Infrastructure Exclusivity for a period of 25 years.

  • In the Marketing Exclusivity, no other player can market Natural Gas within that particular area. But after the expiry of such exclusivity, a new player can market Natural gas but shall need to pay some fees to the Original CGD player in order to use its pipeline.
  • In the Infrastructure Exclusivity, the CGD player gets rights to lay, build & operate pipeline in its geographic area and no other company shall be allowed to lay its pipeline.

Both IGL's & MGL’s marketing exclusivity have expired but owing to their first mover advantage, no other player has entered their geographies. The entry barriers for any new player are quite high, which makes the business for such player unprofitable.

MGL’s infrastructure exclusivity shall expire in the year 2020, but the management of the company is expecting a rollover of marketing exclusivity by another 10 years. Whereas, IGL still has another 4 years before its infrastructure exclusivity expires.

Cost Advantage

Natural Gas is cheaper than crude based fuels. The price of Natural Gas is systematically set against that of Petrol, Diesel, other Industrial fuels and LPG. Natural gas is priced such that it remains cheaper to petrol by 50-60% and diesel by 30-40%. More & more people are adopting natural gas primarily for its economic benefits.

Competitive Advantage

CGDs in India are quasi monopolies with high entry barriers. These barriers are in the form of marketing & infrastructure exclusivity.

At the end of exclusivity period the barrier for 3rd party marketer is in the form of arrangement of gas at competitive price and payment of tariff to the original CGD for using its pipeline.

Further, the existing companies have long term contract with customers, and its less likely for the customers to change their gas distributor unless the price difference is significant.

Favourable Demand Growth

Fuel being a necessity its demand is going to increase over the coming times. The past sustained volume growth in the companies have ensured the continuous volume growth in the coming times as well. The CGDs have now attained a position wherein they can improve their penetration with just a little amount of Capital expenditure.

Moreover, the ever rising population of India, its rising demand for Vehicles, conversion of existing vehicles into CNG based, the shifting of working population towards Metros, emerging nuclear families further increase our confidence in the volume growth of the business.

Sourcing & Price Administering by Government to boost margins

The CGDs have uninterrupted access to the Natural Gas because they cater to the priority sector. Natural Gas for priority sector is sourced from domestic sources and available at price lower than the Market price. The PNGRB does not regulate the price that these CGDs charge from the final consumer. Thus, giving sufficient headroom to the CGDs to increase price in case of any increase in the sourcing cost or any other reasons.

Thus, the CGD’s remain capable to maintain their margins.

Government’s Focus 

The Government of India has various reasons to promote the use of Natural Gas, these are:

  1. To reduce dependence on Crude import
  2. To make India gas based economy
  3. To develop Smart cities, that use clean & efficient fuel
  4. To reduce pollution levels of cities

For this the government has accorded CGDs the status of public utility in order to give the required boost to the sector. Also, the government is auctioning new areas for the purpose of expanding CGDs' facilities.

Threats & Concerns

Natural Gas Sourcing

In case of any change in regulation for providing Natural Gas to the CGDs or the current domestic sources of procurement of Natural gas getting depleted, there can be an immense effect which can not only skew the margins of CGDs, but also hinder their continuity.

Arrival of Electric vehicles or Hybrid Vehicles

CNG accounts for nearly 75% of the revenue for the CGDs, in the coming times the arrival of Electric Vehicles can negatively impact the business of CGDs. In order to combat this, IGL has started installing charging points in its CNG stations, so as to reduce the impact of Electric Vehicles.


Although, the CGDs enjoy exclusivity, but in case MGL is not granted a 10 year rollover, it will lose its competitive advantage & monopoly status. Further, MGL has a risk from neighbouring CGDs i.e. Maharashtra Natural Gas Ltd (MNGL) & Gujarat Gas Ltd (GGL) who can enter once its Infrastructure exclusivity ends.

Foreign Currency Fluctuation

The Administered Pricing Mechanism (APM) & Re-Gasified Liquefied Natural Gas (RLNG) price that CGDs need to pay to acquire gas is denominated in terms of US Dollar, whereas the price that CGDs charge from customers is denominated in rupee terms. Hence, any sort of devaluation in Indian currency in terms of US dollar is going to increase the procurement cost for the CGDs and hence reduce its margins.

Alternate Fuel becoming cost effective

Any fall in the prices of alternate industrial fuels which act as benchmark for the prices for Industrial/Commercial segment shall lead to a fall in the margins of the CGDs.


Usually players have single City Gas Station (CGS) wherein the major amount of gas is received, any problem in such facility can hamper the operations of distribution of city gas. Eg. MGL’s majority gas supply is received at the CGS Wadala, any breakdown at such place can lead to stoppage in the supply of gas.

Fire Risk

Natural Gas being highly inflammable is susceptible to the risk of catching fire. Any leakage or breakdown in the pipeline infrastructure can lead to huge accident, causing loss to the company as well as to the general public.

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References: Companies' Annual reports, Media reports, Investor presentations, Industry reports. (We have taken the most recent published details of the companies and the latest investors' meet)

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. The report & references mentioned are only for information of the readers about the industry stated.

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