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MOSL: MAHANAGAR GAS (Neutral)-Volumes remain a concern, margin normalizes

MAHANAGAR GAS: Volumes remain a concern, margin normalizes

(MAHGL IN, Mkt Cap USD1.7b, CMP INR1196, TP INR1125, 6% Downside, Neutral)

 

• Mahanagar Gas' (MAHGL) 3QFY20 EBITDA/scm and volume growth were in line with our estimates. Lower price of alternate fuels led to lower realization in the industrial/commercial segments; however, margin was supported by lower spot LNG prices and reduction in APM gas prices.
• Since the start of FY20, the company has struggled to clock volume growth (3% YoY for 9MFY20 v/s 10% YoY for 9MFY19), while its EBITDA margin has normalized over the same period. Also, the National Green Tribunal order to curb industrial pollution has limited impact for MAHGL's GAs.
• Thus, with limited volume growth prospects, we maintain Neutral. 

In line EBITDA…

• EBITDA was up 8% YoY to INR2.6b (in-line) while PBT was up 8% YoY (v/s est. 5%) to INR2.4b, led by higher other income.
• PAT was at INR1.9b (+25% YoY, -31% QoQ) as the company took benefit of DTL in 2QFY20. Tax rate was at 23.9% during the quarter.
• EBITDA/scm came in at INR9.2 (v/s INR8.8 in 3QFY19), as the company took a price cut of ~4% (INR2.04/kg on CNG and INR1.19/scm on PNG) owing to reduction in APM prices for 2HFY20.
• For 9MFY20, EBITDA was up 20% YoY at INR8.1b, primarily due to higher EBITDA/scm at INR9.8 (v/s INR8.3 in 9MFY19). PBT was 20% higher YoY to INR1.3b, while PAT was 52% higher YoY to INR1.9b (owing to lower tax at 17% for 9MFY20 v/s 35% in 9MFY19).