Mahanagar Gas - Acquires CGD Player Unison Enviro; Prospects Appear Bright: ICICI Securities

ICICI Securities Report

Mahanagar Gas Ltd. has announced its first inorganic acquisition in the city gas distribution space, Unison Enviro Pvt Ltd., from the latter’s erstwhile promoters Ashoka Buildcon and North Haven India Infra (a Morgan Stanley affiliate).

Mahanagar Gas has acquired 100% stake in the fledgling CGD player and has stated Unison Enviro equity value at Rs 5.3 billion, which implies an enterprise value of ~Rs 6.4 billion (gross debt on the books of Unison Enviro as of FY22, stood at Rs 1.13 billion).

The transaction value implies a price/sales multiple of 8.3 times and enterprise value/Ebitda of 3,128x times. While this may seem exorbitant, we note Unison Enviro has three reasonably large geographical areas in its portfolio (37,362 sqkm, ~10 million population and ~2 million households in aggregate).

We also note that development so far in the first three years has been slow (our estimate based on the reported FY22 revenues suggests volumes at less than 0.1 million metric standard cubic metre per day).

We believe volumes can easily ramp up to ~1 mmscmd by FY28E, subject to meaningful investments (Rs 7 billion-8 billion from FY21-FY27E) and good execution.

At that volume level, Ebitda (assumed at an industry mid-range of Rs 6/standard cubic metre) is seen more than Rs 2 billion, which more than justifies the acquisition cost.

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