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Stronger sales, better margins drive beat

Our view

The 1QFY23 operating profit at Rs 2.85bn (-6% YoY; +32.5% QoQ), stood better than our and street estimates on higher than estimated gas sales and better than estimated per unit Ebitda margins. The beat on per unit margins stemmed from better than estimated realizations. MAHGL undertook three price revisions in both CNG and PNG during the quarter, to pass on the higher gas costs, thereby leading to an Ebitda per unit of Rs 9.1/scm, which though higher QoQ, still stood lower YoY. The vehicle addition, continued at healthy pace with more than 19000 vehicles added during the quarter, driving 64% YoY and 11.5% QoQ growth in CNG sales. 1QFY23, though healthy there are headwinds likely ahead in terms of possibility of higher input gas prices and slower growth in sales with narrowing gap between CNG and alternate fuel (Petrol & Diesel). However incremental allocation of domestic gas could turn outlook favorable. ADD

Result Highlights

* 1QFY23 Profitability: Reported EBITDA and PAT stood at Rs 2.85bn (-6% YoY; +32.5% QoQ) and Rs 1.852bn (-9% YoY; +40% QoQ). Operating earnings while weaker YoY on comparatively weaker per unit Ebitda; improved sequentially as gas sales improved along with sequential improvement in per unit Ebitda margins.

Gross Margin: The gross margin for the quarter stood 8% sequentially higher at Rs 14.4/scm (4Q: Rs 13.3), as MAHGL under-took price revision to offset increase in gas cost. The average CNG price increased by 17% QoQ to Rs 72.4/kg and PNG by 22% QoQ to 57/scm to offset 29% QoQ increase in gas cost to Rs 32/scm.

EBITDA per unit: The EBITDA per unit stood at Rs 9.1/scm (vs Rs 7.55/scm in 4Q) sequentially stronger but weaker than Rs 13.9/scm clocked in the same quarter last year. While higher LNG prices and lower allocation of APM gas impacted margin on YoY basis, sequential improvement stemmed from price interventions.

Gas Sales: The total gas sales during the quarter stood at 3.45mmscmd (CNG: 2.54mmscmd; PNG 0.91), which is higher by 44% YoY and 8.8% QoQ, on continued vehicle addition at more than 6000 vehicles p.m. and addition of 62000 PNG-D and 69 PNG I&C consumers.

Infrastructure development: During the 1Q, MAHGL added a) 2 CNG stations in GA-I&II, taking the total to 292, b) 65.2km of pipeline in GA-1&II taking total to 6285km & 12km in GA-III taking total to 358km.

Valuation

We revise our rating on MAHGL to ADD (from BUY) with unchanged TP of Rs 945/sh. Our DCF based TP implies a target multiple of 13.2x FY24e, in-sync with MAHGL’s mean trading multiple, vs 10.2x stock is currently trading.

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