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Mahanagar Gas Ltd. reported results for the quarter ended March 2022

Highlights from the Quarter (Q4FY22):

Mahanagar Gas reported net revenue of Rs. 1,187.6 cr for Q4FY22, up 51% on a YoY basis and up 6% on a QoQ basis, due to the corresponding quarter last year being impacted by the pandemic. The increased revenues are also due to price hikes taken during the quarter as a result of rising gas prices. The company reported EBITDA of Rs. 215.5 cr, translating to an EBITDA margin of 18.14%, down 2218 Bps on a YoY basis and up 896 Bps on a QoQ basis due to said price hikes. The margin reduction was attributed to the aggressive increase in gas prices during the quarter and subsequent related other expenses. The company reported net income of Rs. 131.8 cr for Q4FY22, at a net margin of 11.10%.

On the volumes front, total volumes for the quarter stood at 285.26 mn SCM. Of which, CNG comprised of ~72%, domestic PNG was at ~15% and commercial PNG at ~13%. The company continued to expand its pipeline network and added consumers across segments. During the quarter the company added 79,130 domestic households, laid 125 km of pipeline, added 14 new CNG stations and added 107 Industrial and Commercial consumers.

OUTLOOK AND VALUATION

MGL’s performance during the quarter was similar to the preceding quarter. With rising gas prices, revenues stood strong albeit with slimming margins. Timely price hikes taken by the company somewhat helped offset the negative impact of rising prices and the company was able to deliver better margins this quarter (despite a 6% decline in volumes), although nowhere close to its historical levels. Other activities like network expansion, customer acquisition, CNG station additions went on as the company added 2.62 lakh households during the fiscal (the highest ever figure for the company). The company’s total pipeline laid stands at 6,221 kms, total CNG stations are at 290 and total industrial and commercial customers are at 4,339

We expect MGL to face challenges to return to their historical margins. Global disruption in supply of natural gas, led by geopolitical issues is expected to keep prices high for the medium term. However, the company remains a quality player with a proven track record and a strong balance sheet. Network expansion and acquisition of customers will drive for the company in the coming years. We are introducing our estimates for FY24E for Mahanagar Gas Ltd, and maintain our BUY rating on the stock for the long term. We expect FY24E revenues at Rs. 4,945 cr, EBITDA at Rs. 1,463 cr at an EBITDA margin of 29.6% and net income of Rs. 1,006 cr. We expect an EPS of Rs. 102 for FY24E and assign a PE multiple of 12x considering the shrinking margins and price risk. With this, we arrive at a target price of Rs. 1,222 showcasing an upside of ~61% from yesterday’s closing price of Rs. 761 over an investment horizon of 18-24 months.

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