Mahanagar Gas Q2 Results Review - Superb Volume; Margin Moderation Continue: Dolat Capital

Dolat Capital Report

Mahanagar Gas Ltd. posted Ebitda/profit after tax -8%/-4% below our estimates, mainly due to-

1. slightly higher gas cost;

2. a 34% YoY increase in employee cost; and

3. higher operating expenses.

Key highlights are:

1. volume growth guidance of ~7% for FY25 and Ebitda margin of Rs 10-12/scm;

2. Q3-to-date administered pricing mechanism gas allocation for CNG dropped to ~57% versus 71% in H1 FY25, while allocation for PNG - D remain at 105%; and

3. CNG vehicle addition of 23k/quarter versus 21K/quater in Q1 FY25.

The CNG two-wheeler addition is still at a nascent stage (1200/quarter) with a maximum consumption of 1.5kg/day.

Mahanagar Gas posted more than 13% YoY volume growth consistently in the last three quarters, indicating an upside risk to our assumption of 7.5% volume CAGR over FY24-27E.

We have also tweaked up the other income assumptions, which increases our FY25E/FY26E earnings estimates by 3.5%/4.2%.

Given the sharp correction in the stock price last week, we are upgrading our rating to ‘Buy’ from Accumulate and slightly raising our SoTP-based target price to Rs 1,870 from Rs 1,855.

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