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CD Equisearch
Mahanagar Gas (Buy)
CMP: ₹1,127.05
Target: ₹1,360
Natural gas production in India has grown at a CAGR of 3.5 per cent during 2005-15 and ICRA expects its production to rise to about 110 mmscmd by 2020-21 and to 125 mmscmd by 2026-27 from the current level of about 88 mmscmd stoked by market-linked pricing formula and marketing freedom allowed by the government to companies (subject to a price ceiling of $5.3 per MMBTU in challenging areas).
MGL witnessed an improvement in its margins in the last quarter (OPM and NPM of 38.3 per cent and 23.4 per cent as against 31.5 per cent and 19.2 per cent in the corresponding quarter of previous year) mainly on account of better price realisation due to fall in administered pricing mechanism (APM) gas cost to $2.48/MMBTU from $3.06/MMBTU, commercial customer category (mainly restaurant with improvement in 19 kg cylinder price), reduction in procurement prices of spot gas and favourable exchange rate.
The ever expanding customer base coupled with large unserved population is likely to boost its operations and earnings going forward; we have increased our FY18e EPS to ₹47.75 from our previous estimate of ₹44.47. .
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