Mahanagar Gas Q3 Results Review - Recent Run-Up Limits Upside; Downgrade To 'Hold': Systematix

Systematix Research Report

Mahanagar Gas Ltd. Q3 FY24 results were below our estimates but above consensus estimates. Mahanagar Gas reported the highest-ever volume of 3.67 million metric standard cubic metre per day, up 7.6% YoY (+2.7% QoQ) led by 1.9%/8% growth in CNG/DPNG, respectively.

Ebitda though declined 6.3% QoQ to Rs 4.5 billion owing to lower gross margin/standard cubic metre which contracted 6.4% QoQ (+40% YoY) to Rs 19.0. Mahanagar Gas added 0.12 million DPNG connections, one CNG station, 98 IPNG customers, and, about 100 new MSRTC buses during the quarter.

Further, Mahanagar Gas managed to add a few large IPNG customers by offering some discounts, which is expected to boost volume. The company is looking to add 400-500 MSRTC buses, 40-45 CNG stations during FY24 with a total estimated capex of nearly Rs 7.5 billion and reaching Rs 10 billion in FY25E.

New CNG vehicle addition keeps the rising trend and added 22,400 vehicles during the quarter versus 21,000 vehicles in Q2 and 18,000 in Q1.

We raise our volume and Ebitda forecasts by 1%/2% and 16%/12% for FY24E/FY25E on the back of strong CNG vehicle addition and a sharp fall in spot LNG price.

We introduce FY26E and forecast volume/Ebitda/profit after tax growth of 5.6%/4.7%/4.7% YoY in FY26E. We roll over our target price to FY26E and arrive at a new target price of Rs1,500 from earlier Rs 1,273 based on the unchanged multiple of 11 times on FY26E. However, the valuation has seen a sharp increase of 32% since our last note on October 31, 2023 and offers 11% upside from our target price.

Therefore, we downgrade the stock to 'Hold' from earlier 'Buy'.

Key risks:

Change in government policies, change in alternate fuel prices, volatility in spot LNG price etc.

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