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MOSL: MAHANAGAR GAS (Buy)-Evident from strong volumes, it’s attractive play on pollution-control focus

Mahanagar Gas: Evident from strong volumes, it’s attractive play on pollution-control focus

(MAHGL IN, Mkt Cap USD1.2b, CMP INR855, TP INR1133, 33% Upside, Buy)

 

Strong volumes drive EBITDA/PAT outperformance

• EBITDA rose 11% YoY (+5% QoQ) to INR2.2b, ahead of our estimate of INR2.1b, led by better-than-expected sales volume. Volume growth was impressive at 9% YoY (our estimate: +6% YoY). PAT grew 9% YoY (+6% QoQ) to INR1.4b, boosted by (a) lower depreciation of INR308m (our estimate: INR340m; +19% YoY, +4% QoQ) and (b) higher other income of INR182m (our estimate: INR158m; +31% YoY, +18% QoQ).
• EBITDA/scm came in flat YoY at INR8.1/scm (in-line; adjusted at INR8.6 for 1QFY19).
• CNG/PNG volumes increased 9/10% YoY: Overall volumes grew sharply by 9% YoY to 2.96mmscmd in 2QFY19, led by an increase of 9% YoY in CNG volumes and 10% YoY in PNG volumes.

 

Valuation and view

• MGL’s performance has been encouraging in terms of volume growth. Despite higher domestic gas price, INR depreciation and increased commission to OMCs, its EBITDA/scm is the highest among listed players. We maintain our EBITDA/scm assumption at INR8 for FY19 and INR7.9 for FY20.