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Evident from strong volumes, it’s attractive play on pollutioncontrol focus Strong volumes drive EBITDA/PAT outperformance
* EBITDA rose 11% YoY (+5% QoQ) to INR2.2b, ahead of our estimate of INR2.1b, led by better-than-expected sales volume. Volume growth was impressive at 9% YoY (our estimate: +6% YoY). PAT grew 9% YoY (+6% QoQ) to INR1.4b, boosted by (a) lower depreciation of INR308m (our estimate: INR340m; +19% YoY, +4% QoQ) and (b) higher other income of INR182m (our estimate: INR158m; +31% YoY, +18% QoQ).
* EBITDA/scm came in flat YoY at INR8.1/scm (in-line; adjusted at INR8.6 for 1QFY19).
* CNG/PNG volumes increased 9/10% YoY: Overall volumes grew sharply by 9% YoY to 2.96mmscmd in 2QFY19, led by an increase of 9% YoY in CNG volumes and 10% YoY in PNG volumes.
* Valuation and view
* MGL’s performance has been encouraging in terms of volume growth. Despite higher domestic gas price, INR depreciation and increased commission to OMCs, its EBITDA/scm is the highest among listed players. We maintain our EBITDA/scm assumption at INR8 for FY19 and INR7.9 for FY20.
* With 1HFY19 EPS at INR26.8, we maintain our FY19 EPS estimate at INR52.1. We expect MGL to maintain EBITDA/scm at INR8/7.9 and deliver volume growth of 8%/10% for FY19/20. We believe that the focus of the government on reducing pollution would enable better incentives for adoption of CNG in transportation as well as in industrial/commercial segments. The stock trades at 15.1x FY20E EPS of INR56.7. We value MGL at 20x FY20E EPS to arrive at a fair value of INR1,133/share, implying an upside 33%. Maintain Buy.
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