Motilal Oswal's research report on Mahanagar Gas
Mahanagar Gas (MAHGL) reported higher-than-estimated EBITDA of INR3.9b (est. INR2.6b), mainly led by higher-than-estimated EBITDA/scm of INR12.8 (est. INR8.2). Volumes were in line with our est. at 3.4mmscmd in 4QFY23. EBITDA/scm improved 57% QoQ due to a lower portion of spot gas in the sourcing mix. The cost of both spot LNG and long-term contracts also declined for MHGL in the quarter. The management expects EBITDA/scm to remain at current levels for the next few months. Management also highlighted that CNG penetration in commercial goods carriers stands at a meager 2-3%. It is expected to improve going forward, led by the launch of company-fitted CNG goods carriers and a substantial improvement in CNG availability on highways. Given strong margins in 4QFY23, we raise our EBITDA/scm assumption to INR10 for FY24 from INR9 previously and keep it unchanged at INR9 for FY25. Subsequently, we increase our EBITDA/PAT assumption by 11%/12% for FY24 while keeping it unchanged for FY25.
Outlook
The stock trades at 12.4x FY24E EPS of INR87. We value it at 16x FY25E EPS to arrive at a TP of INR1,250. Maintain BUY on MAHGL.
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