Mahanagar Gas Ltd. share price target

Crude prices witnessed a sharp decline in March due to spread of Covid-19 across the globe and Opec deal failure. A likely increase in oil output by both Saudi Arabia and Russia from Q1FY21E and lower demand are expected to lead to a sizeable oversupply in the oil market. Subsequent low oil prices are expected to significantly affect ONGC's profitability....

Muted Volume Growth with Sequential Margin Contraction Mahanagar Gas (MAHGL) has reported a muted performance (albeit marginally above our estimates) in 3QFY20. While total sales volume grew by a muted 3% YoY (+2% QoQ) and EBITDA/ scm sequentially declined to Rs9.2 (vs. Rs9.9 in 2QFY20). Despite a muted growth in sales volume, its net sales decreased by 1% YoY and 5% QoQ to Rs7.4bn (2.3% below our estimate) mainly due to ~Rs2/scm cut in CNG & PNG prices during the quarter. Overall price realisation of Rs26.5/scm decreased by 7% YoY and 4% QoQ. Its gross profit grew by 6% YoY to Rs3.9bn on account of 8% YoY decline in cost of natural gas. EBITDA increased by 8% YoY (-5% QoQ) to Rs2.6bn (in line with...

Muted Volume Growth with Sequential Margin Contraction Mahanagar Gas (MAHGL) has reported a muted performance (albeit marginally above our estimates) in 3QFY20. While total sales volume grew by a muted 3% YoY (+2% QoQ) and EBITDA/ scm sequentially declined to Rs9.2 (vs. Rs9.9 in 2QFY20). Despite a muted growth in sales volume, its net sales decreased by 1% YoY and 5% QoQ to Rs7.4bn (2.3% below our estimate) mainly due to ~Rs2/scm cut in CNG & PNG prices during the quarter. Overall price realisation of Rs26.5/scm decreased by 7% YoY and 4% QoQ. Its gross profit grew by 6% YoY to Rs3.9bn on account of 8% YoY decline in cost of natural gas. EBITDA increased by 8% YoY (-5% QoQ) to Rs2.6bn (in line with...

Current price correction provides good entry point given high entry barriers to lucrative markets of Delhi and Mumbai. CGD companies have seen sharp price correction post release of draft policy on open access. While threat of new entrant remains, important clarification on transportation/ compression tariffs to be paid to incumbents is likely to determine the extent of competition going forward. Also, even if the regulations are to move at fast pace, the first volume delivery from new players looks unlikely before FY22 and meaningful impact can be felt by FY25...

During the quarter, revenue was down 0.6% YoY to Rs. 819cr (-4.9% QoQ). Amongst the segments, PNG was worst performer with sales falling 10.8% YoY to Rs. 216cr (5.6% QoQ), followed by declines in CNG of 3.7% YoY to Rs. 523cr (-4.6% QoQ). In terms of volumes, CNG stood at 204.6 Standard Cubic Meter (SCM) (+2.4% YoY; +1.0% QoQ) followed by PNG at 76.1 SCM (+4.8% YoY; +3.6% QoQ). While the domestic market APM of LNG was set at US$3.23/mmbtu from Oct 2019-March 2020 versus US$3.6/mmbtu from AprilSept 2019. The management highlighted that the spot prices were on a downward trend due to decline in demand across Asian markets owing to warmer winter. The recent Corona Virus epidemic which has slowed down...

We like MGL since we do not foresee any significant regulatory adversity in its CGD business either through a change in gas allocation or capping returns. Its loyal customer base of CNG and commercial establishments (who together comprised 79% of Q3's sales mix), that are less price sensitive than industrial customers enable it to maintain per unit margins higher than peers. We see the risk/reward as favorable. Weaker operational metrics in terms of volume growth, feeble earnings growth and lower return ratios compel us to value MGL at 19x Dec-21E EPS vs 25/20x for IGL/GGL. MGLs Q3 EBITDA/PAT was above our estimates owing to better per unit margins. We maintain our BUY despite muted volume growth given its remarkable pricing power (hence, better spreads) and inexpensive valuations (15.6/15.3x FY21/22E PER) versus its peers (IGL 27.8/24.6x and GGL 24.5/21.3x). Our TP is Rs 1,475 (19x Dec-21 EPS) vs the consensus TP of Rs 1,165.

MGL reported lower volume growth of 3% YoY against our expectation of 5.4% YoY. Lower growth in CNG volume at 2.4% YoY (our estimate: 5.5%) to 2.2 mmscmd mainly led to weaker volume growth. On the PNG front, volumes were in line with estimates, increasing ~5.1% YoY to 0.8 mmscmd. We marginally reduce our volume estimates for FY20E due to subdued growth in Q3FY20. We estimate sales volume at 3.1 mmscmd for FY20E. The cost economics of natural gas over other alternative fuels in conjunction with rising pollution concerns having higher growth rate over the long term...

10 February 2020 Mahanagar Gas (MAHGL) 3QFY20 EBITDA/scm and volume growth were in line with our estimates. Lower price of alternate fuels led to lower realization in the industrial/commercial segments; however, margin was supported by lower spot LNG prices and reduction in APM gas prices. Since the start of FY20, the company has struggled to clock volume growth (3% YoY for 9MFY20 v/s 10% YoY for 9MFY19), while its EBITDA margin has normalized over the same period. Also, the National Green Tribunal order to curb industrial pollution has limited impact for MAHGLs GAs. Thus, with limited volume growth prospects, we maintain EBITDA was up 8% YoY to INR2.6b (in-line) while PBT was up 8% YoY (v/s est. PAT was at INR1.9b (+25% YoY, -31% QoQ) as the company took benefit of DTL in 2QFY20. came in at INR9.2 (v/s INR8.8 in 3QFY19), as the company took a price cut of ~4% (INR2.