Highest ever EBITDA/scm; not sustainable
* Mahanagar Gas has reported 1QFY20 earnings with adoption of IndAS-116.
* EBITDA came in at INR2.8b (+25% est.; +31% YoY), with highest ever EBITDA/scm of INR10.3 (v/s INR8.1 in 1QFY19 and INR7.9 in 4QFY19).
* MAHGL soucres it's gas for ind/comm on spot basis. Sharp decline in spot LNG prices compared with lack of commensurate correction in competing liquid fuels resulted in highest ever EBITDA/scm.
* Depreciation increased +26% YoY to INR0.4b.
* Reported PAT was at INR1.7b (+33% YoY, +28% QoQ).
Total volumes stood at 2.97mmscmd v/s our est. of 3.05mmscmd
* CNG volumes were up 2% YoY at 2.16mmscmd. However, CNG volume growth declined for the fourth consecutive quarter, due to ~12% decline in CNG consumption by State Transport Corporation.
* Total PNG volumes were up ~7% YoY at 0.8mmscmd.
* PNG domestic volumes were 11% higher YoY to 0.4mmscmd.
* PNG industrial/commercial were 3% higher YoY at 0.4mmscmd
* Company currently has ~1.17m household customers, ~3,866 industrial customers, 240 CNG stations (of this, 170 are tie-ups with OMCs). The company plans to add ~46 new stations in FY20.
Valuation and view
* MAHGL has not won any Geographical Areas (GA) in the recently concluded 9th and 10th rounds of CGD bidding. Company’s volume growth guidance at ~6-7% over the near-to-medium term is lowest among the pack.
* The Petroleum and Natural Gas Regulatory Board (PNGRB) has introduced a concept paper in order to facilitate competition in GAs where marketing exclusivity has already expired.
* We revise our FY20 EBITDA/scm from INR8.0 to INR8.5 (EPS change ~6% for FY20), factoring in the surprise during the current quarter.
* We assume a volume growth of 6.7%/6.1% and value MAHGL at 15x FY21E EPS of INR61.1. We reiterate our Neutral rating with a target price of INR881, implying ~12% upside to the current market price.
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