Buy Mahanagar Gas; Target Of Rs 1073: Dolat Capital Market

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Dolat Capital Market's research report on Mahanagar Gas

MGL’s Q2FY21 results were in line with estimates on revenue front and above estimates on profitability front. Volumes at 2.07 mmscmd (down 30.9% YoY and up 86.3% QoQ), against our estimates of 2.3 mmsmcd. Strong recovery was seen in volumes from industrial and CNG segment, however Domestic segment continue to outperform. The CNG segment (down 42% YoY and up 168.6% QoQ) have recovered to 90% of Pre Covid levels and BEST segment is operating at higher volumes than Pre Covid levels. The PNG segment reported flattish growth YoY and up 27.3% QoQ, due to strong growth witnessed in Domestic PNG segment of 21.6% YoY, which was offset by a de-growth of 20% YoY in Industrial/ Commercial segment. Volumes recovered sequentially in the industrial segment which is almost operating at full capacity with higher price realization QoQ, however, commercial segment saw a slow recovery. Gross margins have gone up by 282 bps QoQ and 1,336 bps YoY, due to low gas cost and spot prices. MGL got the advantage of relatively low spot prices rather than tied up long term and medium term volumes. Operating margins were higher as cost per unit was lower due to increase in volumes. With the ongoing capital expenditure, MGL is trying to increase its footprint, especially in the Raigad region. Raigad is expected to peak volumes of 0.6 mmscmd in 3-5 years. (Growth of 10x on low base).

Outlook

However, sales volumes have surpassed Pre Covid levels in Novemeber’20. CNG volumes have reached 90%-95% of Pre Covid levels in November’20. The green fuel push by the government will entail easy availability of gas supplies. We recommend Buy with a target price of Rs 1,073 (DCF Method).

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