Sharekhan's research report on Mahanagar Gas
Q3FY23 PAT of Rs. 172 crore (up 5% q-o-q) was 18% below our estimates due a 3%/17% miss in volume/EBITDA margin at 3.4 mmscmd/Rs. 8.2 per mmbtu partially offset by higher other income and slightly lower tax rate. Recently government has given top priority to CGDs for bidding of HP-HT gas, and this would help CGDs replace expensive spot LNG from gas sourcing mix. Also, the Kirit Parikh committee recommendations on capping of APM gas is expected to get approved before March 2023. This would reduce gas cost and remove high gas cost overhang for CGDs. A likely lower gas cost would drive recovery in volume/margin for CGDs from FY24. MGL guided for 5-6% volume CAGR over next 3-5 years and we expect EBITDA margin improvement to >Rs. 9/scm versus Rs8.2/scm in Q3FY23. Hence, we expect MGL’s PAT to clock 15% PAT CAGR over FY22-25E with improvement in RoE to 20%.
We maintain our Buy on MGL with an unchanged PT of Rs. 1,010, noting its inexpensive valuation of 10.1x its FY2024E EPS (at a discount of 32% to three-year average PE of 15x) and expectation of strong earnings recovery.
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