Buy Mahanagar Gas; target of Rs 1165: KR Choksey

KR Choksey's research report on Mahanagar Gas

Mahanagar Gas Ltd. (MGL) reported revenues of INR 6.19 bln, (+16.7% YoY and 5.5% QoQ) led by higher volume growth. Total sales volumes for the quarter stood at 2.9 mmscmd – 2.1 mmscmd for CNG and 0.8 mmscmd for PNG. CNG sales volumes increased 12.6% YoY while PNG sales registered a growth of 10.1% YoY. EBITDA stood at INR 2.1 bn, up +4% YoY, however the EBITDA margins declined 416 bps YoY due to a one-time payment to OMCs with respect to increase in marketing margins and also due to rise in other expenses (+24.3% YoY). Other income for the quarter increased by 25.8% YoY. However, it was negated by an increase in D&A by 19.8% YoY thus leading to only a marginal growth in the PAT on a YoY basis which came to INR 1.28 bn (+3.2% YoY, +22.5% QoQ). The tax out-go remained nearly unchanged at 34.8% for the quarter. NPM declined by 270 bps YoY to 20.7%.

Outlook

We valued the company by assigning a multiple of 18x on the FY19E EPs of INR 64.7 and arrived at target price of INR 1,165 (potential upside – 21.2%). We maintain BUY rating on the stock