Sharekhan's research report on Mahanagar Gas
Higher APM gas allocation of 94% to CNG/D-PNG would reduce gas cost by 25% to $8.4/mmBtu for MGL and use of term LNG for remaining 6% gas requirement instead of expensive spot LNG provides room for margin improvement in Q2FY23. A potential capping of domestic gas price at current levels and likely change in domestic gas pricing formula would remove margin overhang and drive re-rating for CGDs. MGL has cut its CNG price by Rs. 6/kg in Mumbai and this has improved economics of CNG vs petrol. This coupled with ramp-up at Raigad GA (0.5 mmscmd volume potential) would drive 7% volume CAGR over FY22-24E. We highlight here that MGL’s Q1FY23 CNG volume grew 14% versus pre-pandemic volume seen in Q3FY20.
We raise our PE multiple and increase our PT to Rs. 980 while maintaining our Buy rating on MGL. MGL is the cheapest CGD stock and trades at an attractive valuation of 11x FY24 EPS (at 27% discount to 3-year average PE multiple).
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