Mumbai: Mahanagar Gas Ltd, the Mumbai-focused city gas distribution company, has filed the draft red herring prospectus (DRHP) with the Securities and Exchange Board of India to raise funds through an initial public offer (IPO).

The company, owned by GAIL (India) Ltd and BG Asia Pacific Holdings Pte Ltd (BG Asia), an arm of the UK-based BG Group, will come up with an IPO in which the two promoters will offer 12,347,250 equity shares each at a face value of 10 apiece, Mahanagar Gas said in the DRHP.

GAIL and BG Asia each hold 49.75% of the equity shares of the company.

City gas distribution companies are involved in the business of sourcing and selling piped natural gas (PNG) for household cooking purposes and factories and compressed natural gas (CNG) for running vehicles.

Kotak Mahindra Capital and Citigroup are managing the IPO. The company reported a revenue of 2,094.9 crore in fiscal year 2015 compared with a revenue of 1,885.1 crore in the previous fiscal year. In 2014-15, Mahanagar Gas reported a profit of 301 crore compared with a profit of 297.2 crore a year ago.

As on 30 June, the company supplied CNG to more than 430,000 vehicles through a network of 180 CNG filling stations, and provided PNG connections to close to 820,000 domestic households, more than 2,600 commercial and 55 industrial consumers in Mumbai and its adjoining areas, according to the company’s business information in the DRHP.

“For fiscal 2015, our CNG and PNG businesses accounted for 74.09% and 25.91%, respectively, of the total volume of natural gas sold, and 65.10% and 34.90%, respectively, of our total gas sales revenue," said the company in the prospectus.

In terms of revenues and profits, Mahanagar Gas is the third biggest city gas distribution company in India after Ahmedabad-based Gujarat Gas Ltd and New Delhi-based Indraprastha Gas Ltd.

Analysts are wary of the prospects of city gas distribution companies in the short term. Due to a global decline in crude oil prices and a consequent fall in the price of diesel, petrol, and fuel oil, the pricing advantage of CNG and PNG have shrunk significantly in the last one year. This has restricted the growth in volumes of companies such as Indraprastha Gas and Gujarat Gas. Most analysts predict a muted growth for the two companies.

However, with the thrust of the Modi Government on setting up CNG highways across the national highways and trade corridors of India, and the government’s push for use of PNG for cooking purposes, city gas distribution companies are looking forward to a latent demand building up in the long term.

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