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Result Highlights

* 4QFY21 Profitability:  Reported EBITDA and PAT stood at Rs 3.16bn (+30% YoY; ‐0.2% QoQ) and Rs 2.13bn (+28% YoY; ‐2% QoQ). The YoY growth stemmed from weaker base quarter, as strict lockdown in Mar’20 had severely impacted gas sales. The sequential impact on profitability on the other hand, stemmed from 10% QoQ higher other operating expenses.  

* FY21 profitability: The EBITDA and PAT stood at Rs 9.3bn (‐11.3% YoY) and Rs 6.2bn (‐22% YoY). The YoY lower profitability stemmed primarily from 25% YoY lower gas sales as 1HFY21 suffered on account of Covid‐19 related lockdowns.

* Gross Margin: The gross margin for the 4Q stood sequentially flat at Rs 17.7/scm, as MAHGL seemingly passed on the higher LNG prices during the quarter to the consumers, through the price revision undertaken in Feb’21.

* EBITDA per unit: The EBITDA per unit at Rs 12.15/scm stood sequentially 2.2% weaker on higher operating expense. The per unit EBITDA for FY21 stood 18% YoY higher at Rs 11.6/scm

* Gas Sales: The total gas sales during the quarter stood at 2.89mmscmd (CNG: 2.02mmscmd; PNG 0.87), which is about 4% higher YoY and QoQ. The annual gas sales at 2.21mmscmd (CNG: 1.42mmsmcd & PNG: 0.8mmscmd) stood 25% lower YoY primarily on weaker CNG sales (‐34% YoY).  

* Infrastructure development: Over the 4QFY21, MAHGL added 6 new CNG station, 166km of pipeline, 54688 domestic consumers and 99 industrial & commercial consumers, taking the aggregate number to 271 CNG stations, 5916km of pipeline, 1.6mn PNG consumers and 4192 industrial & commercial consumers.

View & Valuation

The 4QFY21 earnings stood below our and street estimates. The miss on our estimates stemmed primarily from a) lower than estimated gas sales and b) higher than estimated cost of imported LNG.  

The second wave of Covid‐19, has to an extent (if not completely) derailed the recovery in gas sales. The gas sales over Apr‐May’21 is believed to be lower by ~25‐30% (compared to FY20), which though better than a 62.5% decline over Apr‐Jun’20, but is still directionally weaker, thereby slowing the momentum seen in 2HFY21 and delaying an expected recovery in sales over FY22.

We therefore adjust our FY22 estimates for a rather back‐ended recovery in gas sales and estimate an earnings CAGR of 8.7% [FY21‐30e] thereby valuing MAHGL at Rs 1280/sh, on DCF basis.  Besides weaker gas sales, a) on‐going negotiation with OMCs over trade margins and b) an adverse judgement in tariff dispute w.r.t. Uran ‐Trombay pipeline, potentially carry a downward risk to MAHGL’s earnings.  

In addition, given MAHGL has at present license for just three geographical areas (GAs) viz, among which the GA of greater Mumbai is largely penetrated from infrastructure perspective, the incremental growth Capex has limited avenue of investment. As result leaving MAHGL with residual cash‐flow to be retuned either as dividend to investors or remaining invested with the company but in lower return, risk averse securities. We therefore downgrade our recommendation on MAHGL to ADD (from BUY).

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