Buy Mahanagar Gas; target of Rs 1146: KR Choksey

KR Choksey's research report on Mahanagar Gas

Mahanagar Gas Ltd. (MGL) reported revenues of INR 7.52 bln, (+29.5% YoY and 8.1% QoQ) led by higher volume growth as well as increase in price realizations across all segments. Overall, sales volume grew by 8.1% on YoY basis however, remained flat on a QoQ basis (+0.1%) at 2.96 mmscmd. CNG sales volumes increased 8.3% YoY from higher fuel consumption, while PNG sales registered a growth of 7.5% YoY. Gross margins declined to 49.1% on a YoY basis (-456 bps) due to increased cost of gas (+42.2% YoY) and a higher excise duty out-go (+26.1% YoY). However, the same was negated to some extent from lower other operating expenses on a YoY basis (-176 bps). OPM was further negatively impacted by 280 bps YoY and 3 bps QoQ to 31.8% owing to higher other expenses (+19.9% YoY, 11.8% QoQ). EBITDA stood at INR 2.39 bn (+19.0% YoY, +8.0% QoQ). Other income increased to INR 204 mn (45.1% YoY, 12.2% QoQ). The tax rate remained nearly unchanged at 34.6%. NPM declined by 162 bps YoY while increasing by 14 bps QoQ to 19.7%. PAT stood at INR 1.48 bn (+19.6% YoY, +8.8% QoQ). The board has declared an interim dividend at 95% on the face value of INR 10 i.e. INR 9.50/share.

Outlook

We valued the company by assigning a multiple of 18x on the FY20E EPs of INR 63.7 and arrived at target price of INR 1,146 (from INR 1,165 earlier) with a potential upside of 24.4%. We maintain BUY rating on the stock.