Buy Mahanagar Gas; target of Rs 1300: Motilal Oswal

Motilal Oswal's research report on Mahanagar Gas

Against our expectation of +6% volume growth, MAHGL’s total volume growth came in at +8% YoY for 3QFY19. INR appreciation helped the company to increase its EBITDA/scm from INR8.1 in 2QFY19 to INR8.8 in the quarter. Led by higher volumes and margins, EBITDA came in at INR2.4b (est. INR2.2b, +19% YoY, +8% QoQ), while PAT came in at INR1.5b (est. INR1.3b, +20% YoY, +9% QoQ). CNG segment grew at 8% YoY while total PNG growth stood at 7%. Within PNG, domestic volume grew at 13% YoY, 6% QoQ. MAHGL’s total sales volume stood at 2.96mmscmd, a growth of 8% YoY, flat sequentially. EBITDA/scm: After EBITDA/scm of INR8.1 in 1HFY19, the same grew to INR8.8 in the quarter. The last price hike taken reflected a much higher INR and appreciation in the same resulted in margin expansion.

Outlook

The stock trades at 15.1x FY20E EPS of INR59.8. We value MAHGL at 20x Dec’20 EPS to arrive at a fair value of INR1,300/share, implying an upside of 41%. Maintain Buy.