IDFC Securities - Mahanagar Gas (MGL) Mahanagar Gas Q1FY19 results (Outperformer) - Beat on all fronts!

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IDFC Securities

Mahanagar Gas' Q1FY19 results (Outperformer) - Beat on all fronts!

Q1FY19 result highlights

Mahanagar Gas (MGL) reported PAT of Rs1.28bn (+3% yoy, 22% qoq), well ahead of estimates of Rs1.12bn, with EBITDA of Rs2.1bn (+4% yoy, +20% qoq) also strongly ahead of IDFCe Rs1.8bn.
The beat was driven by the strongest yoy growth in volumes in the last 9 quarters at 11.9% to 2.87 mmscmd vs IDFCe 2.71 mmscmd.
A strong 12.6% yoy growth in CNG to 2.12 mmscmd driven by higher alternate fuel prices, relicensing of Auto/taxi in MMR and higher private vehicle conversion and strong Domestic PNG (+11.8% yoy to 0.36 mmscmd) with Ind/Comm volumes growing +8.6% to 0.39 mmscmd.
Higher realisations, especially in the industrial/comm segment due to high alt fuel prices as well as moderation qoq in spot LNG combined to deliver a 6.5/15% qoq improvement in gross margins/scm and EBITDA/scm to Rs12.3/8.1 per scm for the quarter, well ahead of Rs11.5/7.35 per scm estimates.

Key positives: Strong yoy growth in volumes, gross margins remains highest among peers

Key negatives: 7% yoy growth in opex/scm.

Impact on financials: FY19/20E EPS raised +1/3.8% to factor better volumes. TP revised to Rs1080/share.

Valuations & view

We see the 6 month 11% underperformance to the Sensex of MGL as an attractive opportunity to buy. The recent quarter has seen a sharp reversal of the weakness seen in Q4FY18 and we see prospects turning stronger ahead. We expect softer domestic gas prices, competitiveness with alternate fuels and growing penetration of the domestic segment in the Mumbai region (MMR) to drive higher volumes, with management guidance to add 0.2mn connections p.a and increase CNG network by 35 stations in FY19E (new+ upgrades) supporting the same. Also the decision to bid for 3 new Geographic Areas (GAs) ensures inorganic growth will come over FY19-23E. We estimate 6.9% CAGR in volume growth over FY18-20E (up from 6.4% earlier), with upside risk from regulatory actions and/or higher CNG conversion rates in MMR. We value MGL on 20x FY20E EPS, delivering a target price of Rs1080/sh, 14% upside, Reiterate Outperformer.

03/08/2018 6 EN

Underlying

Mahanagar Gas

Mahanagar Gas Limited is a city gas distribution company. The Company is engaged in the distribution of compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai and its adjoining areas and in the Raigad district in the state of Maharashtra, India. It also supplies CNG for vehicles, including rickshaws, taxis and cars in Mumbai, Thane, Mira-Bhayander, Navi Mumbai. It supplies CNG to Brihanmumbai Electricity Supply and Transport/Thane Municipal Transport/Maharashtra State Road Transport Corporation/Navi Mumbai Municipal Transport (BEST/TMT/MSRTC/NMMT) buses, light commercial vehicles (LCVs)/ tempos/ trucks/private buses. It offers PNG for domestic, commercial and industrial purpose. It offers PNG for various industries, including metal, pharmaceuticals, food and beverages, printing and dyeing, oil mills, power generation and air conditioning. It also installs gas geysers. Its commercial PNG has various applications in hospitals, hotels, power, charitable trusts and industries.

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INE002S01010 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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