Sharekhan's research report on Mahanagar Gas
MGL’s volume outlook has improved considerably, while high margins are sustainable given the favourable economics of CNG versus petrol. This gives us confidence on strong volume/margin-led earnings growth for MGL (expect 18% PAT CAGR over FY21E-FY23E). The management expects double-digit volume growth in FY2022 and a sustainable 6% volume growth annually thereafter led by a regulatory push and potential ramp-up of volume at Raigad GA (0.6 mmscmd volume potential). We expect high margins for MGL to sustain as pricing power in CNG (accounts for 73% of overall gas sales volumes) gives ability to pass on likely increase in APM gas prices to end customers. Hence, we maintain an EBITDA margin assumption of Rs. 12/Rs. 11.6 per scm over FY21/FY23. MGL’s 20% underperformance to Sensex in the past one year should reverse as volume growth outlook has improved.
Outlook
MGL’s valuation of 12.9x its FY2023E EPS is most attractive in the CGD space. Thus, we retain a Buy with a revised PT of Rs. 1,450.
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