Highlights
- Healthy uptick in revenue driven by industrial volume growth
- CNG volumes remain weak for the third consecutive quarter
- Development in Raigad pacing up as per plan
- Per SCM EBITDA impacted by higher repair cost and provisions
- Capex of Rs 4.5 billion planned for FY20
-------------------------------------------------
Mahanagar Gas Ltd (MGL) has reported a subdued set of Q4 FY19 numbers. While revenue grew a decent 23 percent year-on-year (YoY), margins turned lacklustre despite lower spot LNG prices sequentially and the rupee appreciation.
Key Positives
-A healthy 23 percent uptick in Q4 revenue was mainly driven by higher volumes in the industrial PNG segment. Earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21 percent.
-Its footprint in Raigad is pacing up. MGL added 3 more CNG stations in the GA (geographical area), taking the total to 10.
Key Negatives
-State transport BEST bus strikes impacted the CNG volumes during the quarter, which fell 1.13 percent YoY. Total as well as CNG volume growth declined for the third consecutive quarter. PNG volumes also saw a flat growth.
-EBITDA per standard cubic metre (SCM) fell during the quarter, mostly on lower sales realisations per unit, higher repair and maintenance costs and provisions for inventory and pipelines.
-Softness in crude prices during the quarter impacted the per unit realisation in the industrial segment as the prices are indexed to crude byproducts.
Other Comments
-Healthy addition in three-wheelers and expansion in new geographical areas of Raigad and Karjat are expected to bring in higher CNG volume growth in coming quarters.
-MGL has a planned capex of Rs 450 crore lined up for FY20E.
Outlook
Despite healthy revenue growth, weakness in margins led to a correction in the MGL stock, post earnings. The stock is trading 15 percent below its 52-week high at the 2020E PE of 15x.
The company has not won any new geographies in 9th and 10th rounds of CGD (city gas distribution) bidding. That means long-term strong growth in volumes remains clouded.
Moreover, with the end of the marketing exclusivity in current GAs, there is possibility of competition intensifying, though not in the near term.
The management has highlighted that it’s seeking more avenues of growth. This coupled with a lower dividend payout could mean possibility of inorganic expansion.
In the near term, we expect volumes to improve with rising demand and deeper penetration in the existing geographies. With new CNG stations planned for the current year and an uptick in crude prices, volumes are expected to gain traction in industrial, commercial and CNG segments.
Industrial realisations are also expected to improve due to indexing with crude. Pacing up of development in new areas of Karjat and Raigad is expected to bring in stability in volume growth.
Given these opportunities and threats, we remain cautiously optimistic about the company. However, given lower volume growth outlook than peers, we would want to see better price levels to enter the stock.
For more research articles, visit our Moneycontrol Research Page.
