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MOSL : MAHANAGAR GAS: Margin pressures persist; volumes at a record high

MAHANAGAR GAS: Margin pressures persist; volumes at a record high

(MAHGL IN, Mkt Cap USD1b, CMP INR790, TP INR951, 20% Upside, Buy)

• MAHGL reported an inline earnings. Record high volumes of 3.45mmscmd (up 44% YoY and 9% QoQ) has been offset by a softer EBITDA margin at INR9.1/scm (down 35% YoY). EBITDA stood at INR2.8b (down 6% YoY, but up 33% QoQ).
• While sales volumes were soaring higher in 1QFY23 due to a base effect, we expect a muted growth in FY24 over FY23 due to a lack of growth opportunities.
• Spot LNG prices have increased to ~USD41/mmBtu in Jul’22 from USD28/mmBtu in 1QFY23. Domestic APM gas prices are also expected to rise by ~50% from Oct’22, resulting in a pressure on EBITDA/scm.
• MAHGL has taken a few price hikes in FY23 till date. However, with each rise, incremental hikes become difficult. OMCs have also been seeking higher commissions. Around 65% of CNG volumes for MAHGL accrue from OMC outlets.
• Considering the above, we feel it is unlikely for MAHGL to maintain EBITDA margin at higher levels (like that in FY21). We lower our FY23/FY24 EBITDA margin to INR8.5/INR9 per scm and EBITDA by 14%/10%, led by an increase in gas costs.
• We value the stock at 13x FY24E EPS to arrive at our TP of INR951. We maintain our Buy rating owing to its relatively cheap valuations.

 

Volume and revenue in line, miss on margin

• Total volumes were 9% higher than our estimate at 3.4mmscmd (up 44% YoY and 9% QoQ). CNG volumes were at a record high of 2.5mmscmd (12% higher than our estimate, up 64% YoY and 12% QoQ). Total PNG volumes stood at 0.9mmscmd (2% higher than our estimate, up 7% YoY and 2% QoQ). EBITDA/scm was below our estimate at INR9.1 (est. INR10).
• Accordingly, EBITDA came in line at INR2.8b (down 6% YoY, but up 33% QoQ). Reported PAT stood in line at INR1.8b (down 9% YoY, but up 41% QoQ).