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High LNG prices weigh on earnings

Our view

The 4QFY22 operating profit at Rs 2.15bn (-32% YoY; +109% QoQ) missed our estimates on higher than estimated gas costs. The gas sales during the quarter, stood sequentially weaker as Omicron wave impacted mobility in the month of Jan’22. The APM gas availability as well, continued to be a challenge, with the shortfall of ~17%, during the quarter. Therefore, dependence on LNG to fulfill CNG-T and {NG-D demand impacted margins, which was partially offset by QoQ lower sales volume. In addition, MAHGL undertook price revisions in both CNG and PNG, to pass on the higher gas costs, thereby leading to an Ebitda per unit of Rs 7.55/scm, which though higher QoQ, still stood lower YoY. The vehicle addition, however, was healthy at more than 19000 during the quarter. The demand traction in CNG appears healthy on continued vehicle addition, as Petrol and Diesel prices continue to be higher than CNG.

Result Highlights

▪ 4QFY22 Profitability: Reported EBITDA and PAT stood at Rs 2.15bn (-32% YoY; +109% QoQ) and Rs 1.318bn (-38% YoY; +132% QoQ). The strong sequential growth stemmed from weaker earnings in trailing quarter, when higher gas cost and limited price revision had severely impacted margins.

▪ Gross Margin: The gross margin for the 4Q stood 54% sequentially higher at Rs 13.3/scm (3Q: Rs 8.6), as MAHGL under-took price revision to offset increase in gas cost.

▪ EBITDA per unit: The EBITDA per unit stood at Rs 7.55 (vs Rs 3.39/scm in 3Q) sequentially stronger but weaker than Rs 12.15 clocked in the same quarter last year. Higher LNG prices and lower allocation of APM gas impacted margin in the quarter on YoY basis.

▪ Gas Sales: The total gas sales during the quarter stood at 3.17mmscmd (CNG: 2.28mmscmd; PNG 0.89), which is 10% higher YoY but 4% weaker on sequential basis.

▪ Infrastructure development: During 4QFY22, MAHGL added a) 14 CNG stations in GA-I&II, taking the total to 290, b) 125km of pipeline in GA-1&II taking total to 6221km & 26.2km in GA-III taking total to 346km.

▪ Customer addition: During the quarter, MAHGL added 79,130 domestic and 107 Industrial & Commercial (I&C) consumers in GA I & II, taking total domestic consumers to 1.86mn and 4,339 I&C consumers, respectively.

Valuation

We maintain our BUY rating, on inexpensive valuations, with a revised, Mar’23 TP of Rs 945/sh (from Rs 1225/sh), as we revise our earnings estimates downwards by ~16- 17% to pencil in a lower Ebidta per unit of Rs 8.5/scm (from Rs 10/scm earlier).

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