Buy Mahanagar Gas; target of Rs 1665: Motilal Oswal

Motilal Oswal's research report on Mahanagar Gas

Mahanagar Gas Ltd.’s (MAHGL) EBITDA increased by 75% YoY to INR4.5b in 3QFY24, mainly driven by a 63% YoY rise in EBITDA/scm to INR13.3. Volumes grew 8% YoY to 3.7mmscmd driven by CNG and I/C-PNG. CNG growth was led by an increase in vehicle conversions to 22.4k vehicles in 3Q from ~20k in 2Q and ~15k in 1Q. There was a 30% uptick in CNG passenger vehicle conversions in 3Q due to the ‘CNG Mahotsav’ scheme launched by the company. MAHGL spent INR100m in 3Q on the scheme and intends to spend INR200m in 4Q. I/C PNG growth was driven by high consumption among new customers. The company guarantees a 10% discount on gas prices compared to alternate fuels for the first three years to new customers in GA3 region. In GA2, the same benefit is provided to new customers with high gas offtake. According to the management, CNG is currently 50% cheaper than petrol and 18-19% cheaper than diesel on a calorific value basis. MAHGL does not expect CNG volumes to be meaningfully impacted by INR5-10/lit cut in petrol prices. However, the diesel price cut may affect commercial vehicle conversions and the company may consider price cuts in case volume declines significantly.

Outlook

The stock trades at 11.7x FY25E EPS of INR114.9. We value it at 14x Dec’25E EPS to arrive at a TP of INR1,665 and maintain BUY rating on the stock. We continue to prefer MAHGL over IGL owing to its 30% cheaper valuation (on FY26E PE basis) with largely similar growth profile in the medium term and relatively lower EV risk.