Hold Mahanagar Gas Ltd For Target Rs.1,296 - Sushil Financial
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Mahanagar Gas Ltd. has reported numbers for the quarter ended December’20. Following are the highlights of the result.
Highlights from the Quarter (Q3FY21):
Net Sales for Q3FY21 stood at Rs. 727.33 Cr as against Rs.819.07 Cr in Q3FY20 (down by 11.2% YoY) and against Rs. 548.95 Cr in Q2FY21 (up 32.5% QoQ).
EBITDA for the quarter stood at Rs. 337.11 Cr as against Rs.258.86 Cr in the corresponding quarter last year (increase of 30.2% YoY) and against Rs.239.52 Cr in the previous quarter (increase of 40.7% QoQ). The EBITDA margin for Q3FY21 was 46.35%, up 1474 bps over Q3FY20, which is a new high for the company. This was mainly on account of lower gas costs which reduced from ~43.3% of revenue to 29.5% of revenue on a YoY basis.
Net Income for Q3FY21 was Rs. 217.21 Cr as against Rs. 186.05 Cr in Q3FY20 (increase of 16.7% YoY) and against Rs. 144.34 Cr in the previous quarter (increase of 5
The volumes for the quarter stood at 173.26 SCM Million, a decline of 15.3% YoY and an increase of 47.6% QoQ. The CNG volumes comprised of 68% of the total volumes, followed by Domestic PNG at 18% and Commercial PNG at 14% during the quarter.
Outlook and Valuation
Mahanagar Gas’ business is steadily inching towards normalcy as economic activity across the country resumes and volumes start to ramp up. A healthy tailwind for the company’s operations came in the form of increased Petrol and Diesel prices, which coupled with increase in consumption, has led to preference of CNG vehicles which saw CNG volumesjump 47.6% on a QoQ basis.
Another positive for the company, and the CGD Industry as a whole has come in the form of the Hon’ Finance Minister Nirmala Sitharaman stating that the government plans to add 100 more districts in the CGD Network over the next 3 years. This presents an additional growth opportunity for the company along with ample headroom for growth in its existing GAs.
The company’s performance for the quarter was in line with our expectations, with the margins being better than expected due to reduced gas prices. Therefore we maintain our estimates and outlook for MGL. With the recent run up in the stock price, we revise our rating to HOLD for a target price of Rs. 1,296 which is an upside of ~10.8% from the current price of Rs. 1,170 over an investment horizon of 12-18 months.
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