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MGL’s 1QFY24 EBITDA was significantly higher at INR 5.2bn vs. JMFe/consensus of INR 4.4bn/ INR 4.1bn due to sharper-than-expected jump in margin; however, volume was 2.3% below JMFe. EBITDA margin surged more than expected to INR 16.8/scm in 1QFY24 vs. JMFe of INR 13.9/scm (and vs. INR 12.8/scm in 4QFY23); this was due to lower-than-expected decline in net realisation and lower average gas cost. However, sales volume was 2.3% below JMFe at 3.4mmscmd (up 2.3% QoQ but down 1% YoY); this was attributable to weak CNG (up 4.1 % QoQ, but down 2.3% YoY) and PNG sales volume. We have raised our FY24/25 PAT estimate by 4% factoring in higher EBITDA margin, partly offset by 2-3% decline in volume estimate. TP has been revised to INR 1,300 (from INR 1,150); this is also aided by rolling forward of valuations to Sep’23. We maintain BUY due to MGL’s robust pricing power and steady volume growth story. At CMP, MGL is trading at FY25 P/E of 10.2x (3-year avg: 12.9x) and FY25 P/B of 2.0x (3-year avg: 2.6x).

* Earnings beat on sharper-than-expected jump in margin: MGL’s 1QFY24 EBITDA was significantly higher at INR 5.2bn vs. JMFe/consensus of INR 4.4bn/ INR 4.1bn due to sharperthan-expected jump in margin; but volume was 2.3% below JMFe. Hence, PAT was also significantly higher at INR 3.7bn vs. JMFe/consensus of INR 3.0bn/INR 2.8bn. EBITDA margin rose more sharply than expected to INR 16.8/scm in 1QFY24 vs. JMFe of INR 13.9/scm (and vs. INR 12.8/scm in 4QFY23); this was due to net realisation declining to only INR 49.5/scm vs. JMFe of INR47.3 (from INR 53.1/scm in 4QFY23) despite up to INR 8/kg reduction in CNG price from 1st week of Apr’23 post APM gas price cut. Further, average gas cost declined to USD 9.18/mmbtu or INR 27.2/scm in 1QFY24 vs. JMFe of USD 9.3/mmbtu or INR 27.5/scm (vs. USD 11.6/mmbtu or INR 34.4/scm in 4QFY23). Opex was also lower at INR 5.6/scm (vs. INR 5.9/scm in 4QFY23).

* Sales volume 2.3% below JMFe led by weak CNG/PNG volume: MGL’s overall sales volume in 1QFY24 was 2.3% below JMFe at 3.4mmscmd or 310mmscm (up 2.3% QoQ but down 1% YoY). The weakness in volume was largely due to CNG sales volume being 1.8% below JMFe at 226mmscm or 2.5mmscmd (up 4.1 % QoQ, but down 2.3% YoY). PNG sales volume was also 3.6% below JMFe at 85mmscm (down 2.2% QoQ but up 2.4% YoY) with industrial/commercial volume at 40mmscm (down 2.6% QoQ and 0.9% YoY) and domestic PNG volume at 45mmscm (down 1.8% QoQ but up 5.5% YoY).

* Reiterate BUY due to robust pricing power and steady volume growth visibility: We have raised our FY24/25 PAT estimate by 4% factoring in higher EBITDA margin at INR 11.3-11.8/scm (from INR 10.5-11/scm) partly offset by 2-3% decline in volume estimate. Our DCF-based TP has been revised to INR 1,300 (from INR 1,150); this is also aided by rolling forward of valuations to Sep’23. We maintain BUY on MGL due to its: a) robust pricing power given that CNG is ~45% cheaper vs. petrol, and b) steady volume growth story as CNG penetration in private cars in Mumbai is still only ~20%. At CMP, MGL is trading at FY25 P/E of 10.2x (3-year avg: 12.9x) and FY25 P/B of 2.0x (3-year avg: 2.6x). Key Risks: a) further cut in domestic gas allocation; b) sharp hike in HPHT and spot LNG gas price; c) rise in penetration of electric vehicles.

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