MGL doubles CGD exposure after Unison deal
With no more CGD rounds planned, the only option for large gas retailers to expand is to buy the assets of smaller players.
In September (2022), we first reported how Mumbai-based Mahanagar Gas (MGL) was in talks to buy three CGD areas from highway infrastructure group Ashoka Buildcon's gas retailing subsidiary Unison Enviro. On March 3 (2023), both companies confirmed the (widely reported) deal.
Ashoka Buildcon released a statement saying MGL would pay Rs531cr ($65m) to buy 135,428,600 equity shares of Unison or 100% of the company. MGL confirmed the deal in a similar release, with a caveat that it is subject to PNGRB approval.
Most city gas retail observers welcome the development. "Unison has been trying to sell its areas for over two years," says an industry source.
"MGL has been in talks with Unison for approximately a year." Other interested companies were Torrent Gas, Maharashtra Natural Gas, Adani Total Gas and AG&P.
Our source adds MGL's acquisition will help expand its footprint across Maharashtra and Karnataka. Established on May 8 (1995), MGL has until now operated only in Mumbai, Thane and Raigad.
"Most of India has been carved up in earlier CGD rounds," says a second source. "The only way for a company to expand is to acquire smaller CGD companies."
Our source predicts more such acquisitions as the sector further consolidates. "This phenomenon began with Torrent Gas buying Mahesh Gas in 2018," he adds.
"Soon, you'll see smaller players exit the sector." Torrent acquired Moradabad-based gas retailer Siti Energy in 2019 for Rs175cr ($26m) and took 49% in Essel Gas.
In November 2020, Torrent acquired Mathura-based gas retailer Sanwariya Gas for an estimated Rs130cr ($15.9m). "Torrent gets good returns from these companies," says a source.
"Acquiring established companies allows revenue generation to begin immediately." Welcoming Unison's deal with MGL, Mohit Raj, a senior general manager at Brookfield company Pipeline Infrastructure, posted on LinkedIn: "As the CGD sector scales up, consolidation is heard frequently.
A company's long-term success will depend on how well it rides up the industry's consolidation curve; speed is everything, and companies that capture critical ground early and move up the curve fastest will be the most successful."