Dolat Capital recommended accumulate rating on Mahanagar Gas with a target price of Rs 1070 in its research report dated August 10, 2020.
Dolat Capital's research report on Mahanagar Gas
MGL’s Q1FY21 results were below our estimates on revenue front and profitability front. Volume de-growth at 1.11 mmscmd (down 62.5% YoY and 60% QoQ), against our estimates of 1.9 mmsmcd. Full quarter volumes were impacted due to the lockdown, with CNG segment taken the biggest hit. The CNG segment (down 77.8% YoY and 75.7% QoQ) due no movement of people and vehicles during the lockdown. The domestic PNG segment reported flattish growth sequentially and up 7.1% YoY which was offset by a de-growth of 47% QoQ and 49.3% YoY in Industrial/commercial PNG segment. Overall PNG segment de-grew 21.2% YoY and 21.3% QoQ—domestic PNG segment increased which was offset by decline in industrial and commercial volumes. Gross margins have gone up by 573 bps QoQ and 821.4 bps YoY, due to low gas cost and spot prices. MGL got the advantage of relatively low spot prices rather than tied up long term and medium term volumes. Operating margins were lower as expenses of gas sold was higher because of higher overheads due to reduced volumes. With the ongoing capital expenditure, MGL is trying to increase its footprint, especially in the Raigad region. Raigad is expected to peak volumes of 0.6 mmscmd in 3-5 years.
However, sales volumes have reached 65% of Pre Covid levels in August’20. CNG volumes have reached 50% of Pre Covid levels in August’20. The green fuel push by the government will entail easy availability of gas supplies. We maintain Accumulate with a target price of Rs 1,070 (DCF Method).
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