Mahanagar Gas - Volume Growth, Margin Guidance Remain Intact; Maintain Hold: Systematix

Systematix Research Report

Mahanagar Gas Ltd. has guided 6-7% volume growth in CNG and low double-digit volume growth for industrial and commercial sales. Also, it maintains the Ebitda margin guidance at Rs 9-11/standard cubic metre (Rs 13.7 in FY24). The recent consolidation of Unison Enviro Pvt Ltd. brings an additional 0.14 million metric standard cubic metre per day to their volume, with a potential for further expansion up to 1.2 mmscmd.

Mahanagar Gas expects 100 new MSRTC buses/month to be added in the next two quarters, driving the volume growth. The company plans to build over 25 km of infrastructure steel pipeline, PE of 200 km, and 80-90 CNG stations (50-60 on a standalone basis and 30 in Unison Enviro.

Further, Mahanagar Gas expects to incur a capex of Rs 8 billion for the existing geographical areas and an additional Rs 2 billion in Unison Enviro.

The company expects most of the input tax credit to be passed on leaving no major room for margin expansion, if GST gets implemented in Natural gas. We keep a volume forecast of 4.3% CAGR during FY24-FY26E while keeping higher than the guided margin of Rs 13/13.1, respectively, on the back of an expected fall in LNG prices to benefit margins.

We estimate Rs 18.1 billion/Rs 12.4 billion Ebitda/profit after tax in FY25E and Rs 19.3 billion/Rs 13.1 billion in FY26E, a CAGR of just 2.2% and 0.9%, respectively. We keep Hold with target price of Rs 1,462, based on PER of 11 times on FY26E.

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