Mahanagar Gas Ltd. share price target

Event: The Maharashtra government has proposed to reduce VAT on natural gas. MGL is expected to benefit from the proposal (reduction of VAT from 13.5% to 3%). In a likely scenario of the company passing on partial benefit to its customers (| 2-2.5/scm), we expect a revision in our volume growth estimates (incremental ~2% leading to ~19% YoY growth in FY23E) as the discount of CNG to traditional fuels would widen (upwards of 60-65%) in an...

Although MGL witnessed shortage of APM gas and rise in spot gas prices this quarter, its operations returned to normalcy, wherein the company passed increased input costs to customers. This coupled with expansion plans and other government initiatives provide opportunity for growth. We maintain our ACCUMULATE rating on the stock with a rolled forward...

Gross margins fell | 9.1/scm YoY (| 7/scm QoQ) to | 8.6/scm on account of sharp increase in gas costs. Subsequently, EBITDA fell 67.4% YoY to | 103.1 crore (estimate: | 200.9 crore) PAT was at | 56.8 crore, down 73.9% YoY (estimate: | 130.4 crore) What should investors do? MGL's sales volume growth is expected to be subdued...

Sustainable volumes; margin recovery may be slower Mahanagar Gas (MAHGL) reported a miss on our estimates. Although, volumes were in-line at 3.1mmscmd (+13% YoY, flat QoQ), while EBITDA/scm was lower at INR3.4 (v/s our estimate of INR10 and INR10.5 in 2QFY22). Thus, EBITDA was at INR1b (-66% est., -67% YoY). The EBITDA margin contraction in 3QFY22 was attributable to a reduction in the APM gas allocation (due to supply cuts) and high LNG prices. The average cost of spot LNG stood at ~USD28/mmBtu for the company in 3Q....

We lower our FY22E estimates by 31% to factor in weak Q3 performance and reduce FY23/24E by ~7%, as we lower our margin assumption to Rs10.2/scm reduced domestic gas supplies. Q3 blended gas cost/scm was Rs25.2 (+90%Q/Q) which led to drop in gross margins at Rs11.8/scm (-36%Q/Q). Currently, government is working on revised gas allocation to better address reliance on high cost spot LNG prices. MGL remains a play on increased gas usage from rising vehicle and PNG penetration and we like the business, given its dominating share in growing...

Around 500 new CNG buses to be added in next two months; MGL in talks about retrofitting 185 BEST buses to CNG. We lower our estimates for FY23/24E by 3-10% as we lower our margin assumption to Rs11/scm (earlier Rs12.8-13) and increase our volumes by...