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  • Stock recommendation: Mahanagar Gas Ltd – ACCUMULATE – TP Rs.1030

    Publish date: 2nd August, 2018

    Result Update

    Impressive performance: Operating margin per unit jumped significantly by 15% qoq to Rs.8.1/scm supported by price hike undertaken and improved operational efficiency. On the top of it, meaningful jump in PAT is also supported by higher gas sales volume.

    Key Highlights

    • MGL's Q1FY19 result is better than our expectation. The company has reported a PAT of Rs.1.3 bn higher by 22% qoq due to higher gross margin, lower operating cost, and lower deprecation charge.
    • Gross margin (Revenue-raw material) has increased 10% qoq to Rs.3.26 bn (+9% yoy) due to price hike undertaken and higher gas sales volume.
    • Impressive improvement in per unit of operating profit. EBIDTA/SCM increased by 15% qoq to Rs.8.07/Scm.
    • The Company is planning to connect 1,50,000 household with PNG against current 1,00,000 PNG connection. In Raigad district, MGL has commissioned 5 CNG stations.

    Valuation & outlook

    We believe there exists a meaningful growth potential for MGL due to anticipated growth in the number of CNG operated vehicles considering cost effectiveness of CNG as a fuel, potential growth in the number of households in the areas of operation and gas supply to consumers in the Raigad district. We expect an EPS of Rs.56.7 for FY19E (earlier Rs.51.6) and an EPS of Rs.59.9 for FY20E (earlier Rs.53.5). Based on our estimates, at CMP the stock is trading at 8.3x EV/EBIDTA and 15.7x P/E on FY20E earnings. Post recent rise in the stock price, we now recommend ACCUMULATE (earlier BUY) on MGL with a DCF based price target of Rs.1030 (earlier Rs.948). We have revised our target price to reflect better margins, higher realization and other minor changes.


            

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