Sharekhan's research report on Mahanagar Gas
Q2FY23 PAT of Rs. 164 crore (down 11.5% q-o-q) was below our estimates due a sharp miss in EBITDA margin partially offset by higher other income. Gas sales volume of 3.5 mmscmd (flat q-o-q) was broadly in-line with our estimate. Miss of 19% in EBITDA margin at Rs7.9/scm (down 12.7% q-o-q) was on the account of contraction in I/C-PNG margin while CNG/D-PNG was stable-to-improving in Q2FY23. CNG/D-PNG volume was flat q-o-q at 2.5 mmscmd/0.5 mmscmd while I/C-PNG volume was up 2% q-o-q to 0.4 mmscmd. A likely cut in APM gas price or capping of domestic gas price could help CGD retain pricing power in CNG and act as key rating catalyst. Management guided for 6% volume CAGR over 3-5 years.
We maintain our Buy rating on MGL with a revised PT of Rs. 1,010, noting its inexpensive valuation of 11x its FY2024E EPS (at a discount of 27% to three-year average PE of 15x) and expectation of 13% PAT CAGR over FY22-25E.
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