Motilal Oswal's research report on Mahanagar Gas
Mahanagar Gas (MAHGL) reported a miss on our EBITDA estimate. Its EBITDA stood at INR4.8b (est. INR5.1b), due to weaker-than-estimated EBITDA/scm of INR14.6 (est. INR15.5). Volumes were in line at 3.6mmscmd in 2QFY24. The company has cut CNG prices by INR3/kg and D-PNG prices by INR2/scm w.e.f. 2nd Oct’23 amid steady availability of APM gas. HPHT gas price dipped to USD9.96/mmBtu as of Oct’23 from USD12.12/mmBtu earlier. CNG is now available at more than 50% discount to petrol and ~20% discount to diesel. The company expects I/C PNG segments to grow at a faster pace over the next one or two years than historical trends. This is due to the consumerfriendly steps taken by the company, such as removing take-or-pay clause and providing a discount guarantee to new customers who will be using a good amount of gas. To drive long-term CNG volume growth from high per capita consumption in commercial vehicle segments, the company is providing incentives such as free fuel cards on new vehicle purchases, based on gross vehicle weight.
Outlook
The stock trades at 12.4x FY25E EPS of INR111.4. We value it at 16x FY25E EPS to arrive at our TP of INR1,310. Reiterate BUY owing to its cheaper valuations.
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