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Kotak Securities
Mahanagar Gas (Buy)
Target: ₹1,350
CMP: ₹1190.65
Mahanagar GasL’s Q4-FY21 results were broadly in line with our estimates underpinned by sustained recovery in volumes and elevated margins.
We cut our FY-22 EPS to factor in lower near-term volumes, while retaining FY-23 estimates and Fair Value at ₹1,350. We reiterate Buy given: inexpensive valuations at nearly 11X FY2023 EPS; high FCF yield of 8 per cent; and limited concerns on margins amid a favorable pricing environment and lack of regulations.
MGL’s EBITDA was 3 per cent above estimate at ₹316 crore in Q4-FY21, driven by sustained recovery in volumes and elevated unit margins. Overall volumes increased 4 per cent q-o-q to 2.89 mcm/d.
Gross margins remained steady sequentially at ₹17.7/scm as higher margins for CNG and domestic PNG following price hikes in February 2021, were offset by a sharp q-o-q rise in LNG prices. Unit EBITDA moderated 2 per cent q-o-q to ₹12.1/scm amid higher operating costs.
Net income was 2 per cent above our estimate at ₹213 crore (EPS of ₹21.5, +28 per cent y-o-y). The company indicated that CNG volumes have reduced by about 30 per cent q-o-q, while other segments are broadly holding up for now.
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