Mahanagar Gas Q1 Results Review - Superior Margin Performance Lifted Result; Upgrading To 'Buy': Systematix

Systematix Research Report

Mahanagar Gas Ltd.'s Q1 FY24 profits were much ahead of our estimates led by superior margins. Volume was up 1% QoQ to 3.41 million metric standard cubic metre per day, in line with our estimates. Compressed natural gas volume increased 3% QoQ to 2.48 mmscmd (73% of total) while domestic piped natural gas (14% of total) and industrial/commercial (13% of total) volume declined 3% and 4% to 0.5 and 0.4 mmscmd, respectively.

Gas cost declined significantly by 21% QoQ to Rs 27.2/standard cubic metre which led to the highest-ever gross margin/scm of Rs 22.2, up 20% QoQ due to lower administered price mechanism and both spot and contracted LNG prices.

Further, opex/scm declined 5.4% QoQ to Rs 5.6 which led to an Ebitda/scm growth of a whopping 31% to Rs16.8, 23% higher than our estimates. The company has reiterated its 5-6% volume growth over the next couple of years while the Ebitda margin can be rationalised to ~Rs 11/scm, as prices may see a correction to attract more volumes from the commercial vehicle segment.

Also, Mahanagar Gas’ tie-up with MSRTC would lead to additional 450-500 buses by December 2023 which would add to its volume by 2-3%.

We raise our Ebitda/scm assumption to Rs 12.6/12.2 for FY24E/FY25E from Rs 10.4/10.5 earlier. Further, with a better margin environment with ease in gas prices and strong CNG vehicle addition, we raise our price-to-earning ratio multiple to 11 times from earlier 10 times on FY25E which gives us a new target price of Rs 1,273 from earlier 1,068. We upgrade the stock to 'Buy' from earlier 'Hold'.

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