MANAGEMENT DISCUSSION AND ANALYSIS NATURE OF BUSINESS The Company is in the business of supplying Combrssed Natural Gas (CNG) to transport sector and Piped Natural Gas (PNG) to Domestic, Industrial & Commercial sectors in Delhi and NCR. CNG is a safe, economical and environment friendly fuel for transport sector. It is replacing traditional fossil fuels i.e. petrol and diesel. The running cost of the vehicles that run on CNG is currently around 58% cheaper than petrol and 17% cheaper than diesel. PNG, the other fuel supplied by the Company is a safe, convenient, environment friendly and reliable fuel for domestic, commercial and industrial consumers. Its demand continues to grow with potential consumers in new areas eagerly awaiting the network to connect them. NATURAL GAS SCENARIO IN INDIA Natural gas is the cleanest burning fossil fuel and its environment friendly characterstics make it more popular than other hydrocarbon fuel. It is playing an increasing role in helping to attain national goals of a cleaner environment, energy security and a more competitive economy. India has been witnessing consistent growth in demand for energy resources. The primary energy mix of India is also set to alter on account of the substitution of oil by natural gas which is emerging as an important component in the total energy basket. The share of natural gas is expected to increase significantly in the coming years. Power and Fertilizer sectors remain the two biggest contributors to natural gas demand in India and expected to remain the major segments for natural gas demand in India in future as well. The brsent supply of natural gas in India is mainly from the nominated blocks, operated by ONGC and OIL, private and joint venture fields like Panna-Mukta &Tapti (PMT) and from the fields awarded under NELP like RIL's KG D-6. There is a need to push domestic gas production through new gas fields. With the growing demand for natural gas in India and the fact that existing gas fields are in decline, a significant contribution in natural gas demand-supply gap is expected to be fulfilled by LNG imports. Several plans to augment and add regasification capacities on the western and eastern coast of India are under process to facilitate LNG imports into India. CITY GAS DISTRIBUTION IN INDIA City Gas Distribution (CGD) sector is one of the growing sectors in India. Usage of natural gas has proved to be economical visa-vis competing fuels for most of the user segments within the CGD space. Natural gas demand for CGD sector is expected to rise steadily due to the addition of gas networks in new cities, price advantage of CNG and increased use of PNG in domestic, industrial and commercial sectors. Factors like availability of domestic gas, import of LNG and development of requisite infrastructure are also expected to push the growth of natural gas demand from the CGD user segment. The Power, Fertilizer, Industrial and CGD segments are expected to contribute to the bulk of future growth of natural gas demand in India. The process of addressing environmental concerns is expected to drive the demand of natural gas from the industrial users as well as CNG users in the CGD segment. The Government is giving thrust to CGD sector with special focus on providing PNG to a large number of households on a mission mode. The share of natural gas demand for CGD sector in the total gas demand is expected to increase significantly. Ministry of Petroleum and Natural Gas (MoP&NG) has provided domestic gas to CGD companies at top priority thereby fulfilling the entire natural gas requirement of CNG and PNG Domestic segment by indigenous gas, which would make the selling price of CNG & PNG competitive to the alternate fuels like petrol, diesel, LPG etc. OUTLOOK ON OPPORTUNITIES CNG has become a popular fuel for transport sector. While its usage has been mandated in the case of public transport in Delhi, the switch over to CNG has been voluntary in case of private car segment due to cost economics weighing in its favour. Use of CNG as a vehicular fuel is well established and growing worldwide. In an effort to curb air pollution and to improve ambient air quality in NCR & Delhi, the National Green Tribunal (NGT) in a landmark ruling on April 7th, 2015 banned diesel vehicles over ten years old from plying on Delhi roads and all petrol vehicles which are more than 15 years old shall not be registered in NCR and Delhi. It is expected that more numbers of CNG private cars would be added, as customers would brfer CNG over Diesel for their new purchases also. In an endeavor to expand CNG usage other than automobile sector, your Company has taken a first mover advantage by setting up of exclusive CNG facility for Northern Railways, wherein CNG is being dispensed to 4 numbers of Driving Power Cars (DPC) with mix use of CNG with Diesel. Also, during Railway Budget for 2015-16 on February 26th, 2015, Hon'ble Railway Minister, had proposed to convert 100 DEMUs to dual fuel - CNG and diesel. This would further boost up the usage of CNG. The convenience associated with PNG has already established it as the brferred fuel and its demand is growing in domestic, commercial as well as industrial segments. An interesting shift in domestic PNG business has been observed during last few years. PNG is now a brferred option among builders / institutions that are in the business of constructing new residential units. Hence besides getting new customers from networked areas your Company is able to reap rich dividend from this shift in potential PNG market. This is a firm indicator of our growth in PNG business. Needless to add commercial segment PNG business shows proportional volume growth with domestic PNG business within expanded network of pipeline infrastructure. The Company enjoying the first mover advantage in the region has already demonstrated its expertise in developing and fast rolling out CGD network in the adjoining NCR towns of Noida, Greater Noida and Ghaziabad in a short span. This gives the Company an edge to tap the emerging opportunities in new geographies for future growth. The Company has strongly established itself in Delhi and NCR which have good potential for Natural gas in coming years. Apart from consolidating in its existing areas of operation, the Company is looking at expansion in new geographical areas independently and through strategic alliances. The Company has a robust infrastructure of CNG stations and Pipeline network to ensure easy availability of CNG and PNG to its customers. The growth drivers and opportunities in our existing areas of operations are as follows: CNG : • It is expected that with an increase in allocation of domestic gas to CGD entities, the price differential of CNG compared to alternate liquid fuels will drive the conversion of petrol driven private vehicles into CNG mode. • Introduction of more CNG variant models by car manufacturers will add to CNG sales. • Expansion of Private Bus Clusters in Public Transport System. It is expected that there would be nearly 2000 cluster buses by March'16. • The Company has taken a lead role in facilitating necessary trials on CNG two wheelers with the help of ARAI & a reputed experienced player also known internationally. • Taxi segment is likely to register a growth of 450-500 nos. of vehicles per month against brvious year's figure of 220 to 250 nos. per month due to stringent norms on Web Based Taxi Services. • Introduction of four-wheelers, quadricycle autos: The process for the inclusion of the new class in the Central Motor Vehicles Regulations is being finalised which would further boost the usage of CNG in Automobile sector. PNG : • Your Company has expanded its PNG network into major parts of NOIDA, Greater NOIDA and Ghaziabad and also expanded into all parts of NCT of Delhi. • The coming years will be for consolidation of business in networked areas to achieve higher asset utilization. Efforts will be made to increase customer base in covered areas. Your Company is also looking beyond geographies of Delhi and NCR. In this direction, the Company has acquired 50% stake in Maharashtra Natural Gas Ltd., a City Gas Distribution Company operating in the city of Pune. The Company is exploring equity participation in other cities as well. OUTLOOK ON THREATS, RISKS & CONCERNS AND MITIGATIONS A. Regulatory Regime The City Gas Distribution business is under Regulatory regime wherein the Regulatory Board (PNGRB) has framed various Regulations, which have ramifications on the day to day business operations of a CGD entity. The Company has the infrastructure exclusivity in NCT of Delhi for another decade. Your Company has already CGD infrastructure across all parts of the city. Setting up of new CGD infrastructure would be major challenge for any new entrant in the market as per the brvailing trends in the real estate market. The Petroleum and Natural Gas Regulatory Board (PNGRB) has been inviting bids from time to time for setting up CGD network in new geographical areas. Your Company intends to participate in the bidding for expanding its areas of operations. B. Gas Sourcing In the changing gas scenario, the assured supply of gas at competitive price will play an important role for future growth of your Company. MoP&NG, Government of India under it's recent guidelines has directed GAIL to allocate supply of domestic gas to your Company based on actual requirement along with a flexibility to draw 10% over and above the allocation. GAIL being the gas supplier not only assures IGL of receiving firm quantities but also ensures priority supply in the event of any stoppage/disruption in domestic gas supply. Firm allocation of domestic gas for the region allows your Company to sell CNG and PNG Domestic at the most competitive rates. In order to cater growing gas demand of industrial & commercial consumers, the Company is procuring R-LNG, both on term & spot basis. In this regard, besides having gas supply tie ups with GAIL and BPCL, to strengthen IGL's gas sourcing portfolio the Company has signed framework gas supply agreement with other major R-LNG suppliers viz Shell Hazira LNG Private Limited, IOCL, Gujarat State Petroleum Corporation Limited and BG India Energy Solutions Private Limited. The Company has KG-D6 Gas allocation on firm basis and also on fallback basis, but the supplies from RIL have reduced to nil due to fall in production of KG-D6 Gas. The Company is actively looking at a variety of options to meet the expected gas demand in future. C. Gas Prices Till January, 2014, in absence of additional supply of domestic gas, the dependence on expensive R-LNG was increasing gradually. However, under the recently implemented guidelines of MoP&NG, Government of India, additional domestic gas has been allocated to your Company. This positive development shall help in maintaining gas selling prices both in CNG and PNG-domestic segment competitive over alternate fuels. MoP&NG has fixed the basis for price revision of domestically produced gas. Current pricing of domestic gas is based on the global oil/gas prices which is helping price sensitive segments such as PNG-domestic and CNG which competes with fuels such as Domestic LPG and Diesel respectively. In the long run, Natural Gas will have a competitive edge both in CNG & PNG Domestic Segment. With respect to the Industrial Segment, R-LNG prices in recent past have been more or less stagnant owing to long term gas agreements, whereas the alternate fuel prices have reduced considerably due to unbrcedented fall in international crude oil prices. This has been affecting the competitive advantage of gas over the major alternative fuel (Furnace Oil). Also, it has been noticed that there is a substantial reduction in bulk LPG prices, the main alternate fuel in small commercial segment. Your Company could retain its existing customer base despite stiff competition from competing fuels. The Company is fully aware of the challenge to keep the overall procurement cost of gas under check in order to supply CNG and PNG at competitive price as compared to alternate competing fuels. D. Macro Economic Scenario The fast changing macro-economic scenario also has an impact on the growth plan of your Company. The fluctuations in forex rates and in Brent Crude prices have a direct impact on the cost of sourcing of your Company. Since basic cost of gas from all sources - domestic as well as imported is dollar linked, it becomes vulnerable to any fluctuation in the forex rates. Variation in Brent Crude prices impact the price of imported LNG as its basic price has been linked to Brent Crude. Your Company has been undertaking necessary revisions in the retail price to account for changes in the macro economic scenario. E. Value Creation though Operational Excellence In the competitive environment, creating value for the end customer is of utmost importance for any Company. Your Company is fully conscious and is continuously working for enhancing operational efficiency, cost optimisation and asset utilisation and better customer services. PERFORMANCE REVIEW- CNG & PNG The CNG business have grown during the year 2014-15, however there is some decline in PNG business during the year. On an overall basis, sales volume has shown a growth of around 1.4% over the brvious year. During the year, CNG sales volume has increased to 1073.11 mmscm from 1027.54 mmscm in the brvious year showing a growth of 4.4% but PNG sales volume has decreased to 330.46 mmscm from 356.11 mmscm year, thereby showing a decline of 7.2%. The decline in PNG sales volume is mainly due to unbrcedented reduction in prices of alternate fuels like Furnace Oil (FO) affecting PNG industrial and commercial volumes. The Company has a network of 326 stations for supply of CNG as on March 31, 2015. The estimated number of vehicles using CNG was over 8 lakhs in March 2015 and our back-end infrastructure, combrssion capacity and dispensing outlets are under continuous augmentation to meet the growing demand. The Company has provided PNG connections to 5.6 lakhs domestic households and around 2300 commercial & industrial customers as on March 31, 2015. FINANCIAL PERFORMANCE Gross turnover of Rs.4048.58 crores for the year ended March 31, 2015 showed a decline of 6% over the brvious year turnover of Rs.4319.37 crores. During the year the cost of Natural Gas purchased was Rs.2395.83 crores (1486.01 mmscm) as compared to Rs.2681.43 crores (1448.24 mmscm) in the brvious year. The decrease in cost is due to higher allocation of domestic gas during the year. Profit before tax has been Rs.649.04 crores as against Rs.539.80 crores in the brvious year. Profit after tax has been Rs.437.73 crores as compared to Rs.360.26 crores in the brvious year. The Company is meeting its fund requirement through internal accruals. The total bank borrowings as on March 31, 2015 are Rs.145.31 crores. SHARE CAPITAL Share Capital of the Company comprises Equity Share Capital of Rs.140 crores. RESERVES & SURPLUS Reserves & Surplus of the Company was Rs.1958.13 crores as at March 31, 2015 as against Rs.1623.16 crores as at March 31, 2014. NETWORTH The networth of the Company was Rs. 2098.13 crores as at March 31, 2015 as against Rs. 1763.16 as at March 31, 2014. EARNING PER SHARE Earning per share for the financial year 2014-15 has been Rs.31.27 compared to Rs.25.73 in the brvious year. INTEREST AND FINANCE CHARGES During the year interest and finance charges paid to the banks for borrowed funds is Rs.29.82 crores as compared to Rs.44.13 crores in brvious year. INTERNAL CONTROLS The Company has adequate internal control procedures commensurate with its size and nature of its business. During the financial year 2014-15, M/s KPMG, Chartered Accountants and in-house audit team carried out internal audits and the internal audit reports brpared by them were placed before the Audit Committee. HUMAN RESOURCES The Company recognizes that the challenges of the future can be best met with competent and motivated human resources. It has taken various HR initiatives to add value to its pool of human talent and integration of individual goals with that of the Company. Training and Development of the employees forms an integral part of Company's policy towards achieving its objectives. The Company recognizes and apbrciates the contribution of all its employees in its growth path. ENVIRONMENT CONSCIOUSNESS Natural gas intrinsically being the cleanest of the fossil fuels, it is endeavour of the Company to promote its wider use among all categories of prospective customers. Towards this direction, all the users are made aware of the economical and environmental advantages of natural gas compared to other fuels. The Company is making continuous efforts to reduce pollution in Delhi and its adjoining areas. |