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* State transport strike hit Q4 CNG volumes, PNG volume traction intact.
* Higher other expense drag Q4 spreads; FY19 spreads healthy at Rs8.2/scm.
* Discretionary conversion and geographical expansion to drive volume growth.
We maintain our earnings estimate for FY20/21E. MGL remains a play on increased gas penetration from rising vehicle and PNG penetration. We continue to like MGL’s business given their dominating share in the growing markets of Mumbai and suburbs. Reiterate BUY.
Higher other expense drags earnings:
Mahanagar Gas' (MGL's) reported Q4FY19 EBITDA and PAT at Rs2.1bn (PLe: Rs2.4bn; +22%YoY) and Rs1.34bn (PLe: Rs1.55bn; +27%YoY), respectively. Operating profits were impacted by higher other expense of Rs1.2bn (+20%YoY) from provisions and higher repairs. For FY19, EBITDA and PAT at Rs8.9bn (+14%YoY) and Rs5.5bn (+14%YoY), respectively.
CNG volumes affected by strike:
For Q4FY19, CNG and PNG volumes were at 198mscm (+7% YoY) and 73mscm (+9% YoY), respectively. During the quarter, BEST bus strike impacted CNG sales by 1.1%. For Q4, vehicle conversion momentum continued and were at ~6,000 vehicles per month. For FY19, CNG volumes grew 9.2% to 791mscm (2.94mmsmcd) led by higher per capita consumption due to worsening traffic condition, which is likely to continue.
PNG volumes also recorded 9.2% growth to 286mscm. Going forward, CNG volumes is likely to remain healthy on the back addition of new three wheelers along with geographical expansion to Raigad and Karjat. Also, government’s push for PNG’s domestic connections will support volumes. Tailwinds of benign domestic gas, opportunities in two-wheeler space, along with favourable demand traction from new geography, will drive earnings
MGL’s Q4 spreads were at Rs7.9/scm (Q3:Rs8.8/scm; PLe Rs9.1/scm) despite exchange rate appreciation and soft spot LNG prices. Spreads were impacted due to lower margins in industrial and commercial volume due to drop in prices of competing fuel ie furnace oil. For FY19, spreads were at Rs8.2/scm vs Rs7.9 last year.
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