Accumulate Mahanagar Gas Ltd for Target Rs 1,383 by Elara Capitals
Strong volume growth maintained
The stock price of Mahanagar Gas (MAHGL IN) has declined 3% in the past three months, broadly in-line with the benchmark Nifty Small-Cap Index, due to falling administered price mechanism (APM) gas availability and hike in zone-1 transmission cost for CNG & households. MAHGL delivered a stable Q3FY26, with 7% YoY volume growth cushioning margins amid a higher-cost gas mix. Management commentary was realistic, guiding INR 8–9/scm EBITDA margin, reflecting declining APM gas availability and greater reliance on market-linked gas. Compared with IGL, MAHGL continues to outperform on volume growth since FY24, even as near-term margin upside remains capped. Overall, MAHGL is transitioning from an APM-heavy, Mumbai-centric CGD to a geographically diversified player. While peak margins are behind, durability of volume growth is strong
We reiterate MAHGL is best placed among listed CGDs due to strong growth In volume driven by outside Mumbai geographies. Based on 9MFY26 earnings trend and management commentary, we cut FY26E/27E/28E EPS by 6%/7%/5%. We roll-over our TP to FY28E estimates and cut TP to INR 1,383 from INR 1,502. We maintain Accumulate
Volume growth offsets lower margin due to gas mix: Adjusted EBITDA in Q3 was INR 3.6bn, (Elara: INR 3.9bn), up 11% YoY as lower EBITDA/scm margin was offset by higher volume. PAT declined 6% YoY on lower other income. Cost of gas in INR/scm was mostly flat YoY and QoQ.
Sales volume growth was at 7% YoY to 4.6mmscmd post amalgamation with Unison Enviro. CNG sales volume grew 6% YoY to 3.3mmscmd. Domestic PNG grew 9% YoY to 0.6mmscmd. Industrial/commercial PNG volume grew 12% YoY to 0.7mmscmd. Growth was faster in GA2/GA3 and UEPL (UEPL ~0.28mmscmd in Q3 versus ~0.19 last year). Mumbai growth was constrained by BEST bus transition and land availability. Zonal unified transportation tariff may add INR 0.10–0.20/scm to cost.
Reiterate Accumulate; TP cut to INR 1,383: Based on 9MFY26 earnings trend and management commentary, we cut FY26E/27E/28E EPS by 6%/7%/5%. We lower EBITDA/scm margin assumption to INR 8.5/scm (from INR 8.7-9.0/scm). So, we cut our TP to INR 1,383 from INR 1,502. We roll-over our TP to FY28E estimates. Our DCF-based TP assumes a long-term EBITDA/scm margin at INR 8.5/scm (from INR 8.7/scm), a WACC of 11.5% (unchanged) and FY25-28E volume CAGR of 11.0% (from 12.5%).
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SEBI Registration number is INH000000933.
