Mahanagar Gas Ltd. share price target

MGL has a strong gas pipeline infrastructure of 5393 km in Mumbai and its adjoining areas. CNG and domestic PNG penetration in geographical areas (GA1 & GA2) is at ~35%. Additionally, MGL's planned capex in Pen, Uran and Karjat areas provides visibility for volume growth in the medium to long term. In the CNG segment, MGL plans to add 25 CNG stations per year for the next three years to the existing network of 244 CNG stations. We expect MGL's volumes to increase at ~5% CAGR in FY19-21E. Given the cost economics of natural gas over other alternative fuels in conjunction with...

MGL did not win any new GAs in ninth or tenth rounds of CGD biddings. This factor may weigh on its long-term growth. Its loyal customer base of CNG and commercial establishments (who together comprise 81% of total sales mix), that are less price sensitive than industrial customers enable it to maintain per unit margins higher than peers. Moreover, we do not foresee any significant regulatory adversity in its CGD business either through a change in gas allocation or capping returns. We maintain BUY on MGL despite muted volume growth owing to its remarkable pricing power (hence, better spreads) and inexpensive valuations (14.5/13.7x FY21/22E PER) versus its peers (IGL 25.3/22.6x and GGL 16.2/14.2x). Our TP is Rs 1,355/sh (19x Sep-21E EPS).

Volume growth subdued on account of CNG segment MGL reported lower volume growth of 1.3% YoY against our expectation of 4.1% YoY. Lower growth in CNG volume at 1% YoY (our estimate: 5.5%) to 2.2 mmscmd mainly led to disappointing volume growth. On the PNG front, volumes also decelerated, which increased 2.1% YoY to 0.8 mmscmd. We marginally lower MGL's volume outlook to 5-6% CAGR in coming years due to lower CNG growth assumptions. Given the cost economics of natural gas over other alternative fuels in conjunction with rising pollution concerns,...

13 November 2019 EBITDA/scm came in line with our estimate at INR9.9 (+22% YoY) in 2QFY20, mainly due to better price realization (MAHGL took a price hike in the first week of July) and lower spot prices. Reported EBITDA was up 23% YoY at INR2.7b. Depreciation stood at INR3.9b and interest cost at INR15m on account of adoption of Ind-AS 116. PBT was up 23% YoY at INR2.6b. The company has re-measured its DTL and recorded a reduction of INR567m as deferred tax. Reported PAT was at INR2.7b versus INR1.4b in 2QFY19. , EBITDA was up 27% YoY, with EBITDA/scm at INR10.1 versus INR8.1 in 1HFY19.

Mahanagar Gas's (MAHGL) Q2FY20 adj. PAT underperformed estimates at Rs 2.1bn (+57% YoY).

and decline in CNG sold to state transport (8% of total CNG volume) due to scrappage of old buses without induction of new ones explain subdued CNG volume growth. However, better price realization across all customer...

Mahanagar Gas Limited is a city gas distribution company.

Mahanagar Gas Limited reported 22.9% YoY increase in revenue in Q1FY20 to reach Rs. 831 cr. primarily driven by 24.3% YoY CNG segment. (Contributing 68.3% to total revenue) and 17.8% YoY growth in PNG segment (Contributing 30.7% to total revenue). Q1FY20 EBITDA rose 31.2% YoY to Rs 276.8 cr. CNG sales volume were up by 2.0% YoY to 196.9 SCM million. PNG domestic sales volume have grown at a faster rate of 9.4% YoY to 36.4 SCM million and is the only segment to grow in terms of volume on QoQ basis. EBITDA grew to Rs. 277 cr. up 31.2% YoY from Rs. 211 cr. in Q1FY20, and margin came in at 33.3% (+210bps y-o-y) helped by higher volumes of...

Mahanagar Gas has reported 1QFY20 earnings with adoption of IndAS-116. EBITDA came in at INR2.8b (+25% est.; +31% YoY), with highest ever EBITDA/scm of INR10.3 (v/s INR8.1 in 1QFY19 and INR7.9 in 4QFY19). MAHGL soucres it's gas for ind/comm on spot basis. Sharp decline in spot LNG prices compared with lack of commensurate correction in competing liquid fuels resulted in highest ever EBITDA/scm. Depreciation increased +26% YoY to INR0.4b....

MGL did not win any new GAs in either of the recently concluded ninth or tenth rounds of CGD biddings. This factor may weigh on its long-term growth. We believe that the company will continue to enjoy pricing power and be able to maintain its per unit spread. This is because of a loyal customer base of CNG and commercial customers (who together comprise ~80% of total sales mix), that are less price sensitive than industrial customers. Moreover, we do not foresee any significant regulatory adversity in its CGD business either through a change in gas allocation or capping returns. We maintain BUY on MGL post an impressive performance on spreads albeit disappointing volume growth. Our TP is Rs 1,133/sh (19x Jun-21E standalone EPS).