Buy Mahanagar Gas; target of Rs 950: ICICI Direct

ICICI Direct's research report on Mahanagar Gas

Mahanagar Gas (MGL) reported its Q1FY20 results which were above our estimates on profitability front on account of better margins. The topline increased 22.9 % YoY to Rs 831.2 crore marginally below our estimates of Rs 835.5 crore on account of lower than expected sales volume. The volumes came at 3.0 mmscmd (up 3.8% YoY) vs. our estimates of Rs 3.1 mmscmd mainly on account of lower growth of 2% YoY in CNG volumes. Gross margins were higher by Rs 2/scm QoQ and Rs 2.7/scm YoY due to increase in realisations. Subsequently, PAT increased 32.7% YoY to Rs 170.2 crore and came above our estimates of Rs 152.3 crore.

Outlook

In spite of decent performance, we have lowered our P/E multiple from 16x to 14x due to uncertainty over regulator’s (PNGRB) decision on possible competition in existing area (Mumbai) and selling of remaining 10% stake of BG Group in MGL. We arrive at a target price of Rs 950 with a BUY recommendation.