Buy Mahanagar Gas Ltd For Target Rs.1,250 - Motilal Oswal Financial Services Ltd
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* Mahanagar Gas (MAHGL) reported higher-than-estimated EBITDA of INR3.9b (est. INR2.6b), mainly led by higher-than-estimated EBITDA/scm of INR12.8 (est. INR8.2). Volumes were in line with our est. at 3.4mmscmd in 4QFY23.
* EBITDA/scm improved 57% QoQ due to a lower portion of spot gas in the sourcing mix. The cost of both spot LNG and long-term contracts also declined for MHGL in the quarter. The management expects EBITDA/scm to remain at current levels for the next few months.
* Management also highlighted that CNG penetration in commercial goods carriers stands at a meager 2-3%. It is expected to improve going forward, led by the launch of company-fitted CNG goods carriers and a substantial improvement in CNG availability on highways.
* Given strong margins in 4QFY23, we raise our EBITDA/scm assumption to INR10 for FY24 from INR9 previously and keep it unchanged at INR9 for FY25. Subsequently, we increase our EBITDA/PAT assumption by 11%/12% for FY24 while keeping it unchanged for FY25.
* The stock trades at 12.4x FY24E EPS of INR87. We value it at 16x FY25E EPS to arrive at a TP of INR1,250. Maintain BUY on MAHGL.
Volumes in line; beat on margin
* 4QFY23 total volumes were in line with our est. at 3.4mmscmd (+6% YoY).
* CNG volumes came in at 2.4mmscmd (3% below est., +6% YoY) in 4QFY23.
* PNG total volumes stood at 1mmscmd (2% below est., +8% YoY, +3% QoQ).
* MAHGL’s EBITDA/scm at INR12.8 beat our estimate of INR8.2 due to lowerthan-estimated gas costs.
* Thus, EBITDA at INR3.9b exceeded our estimate of INR2.6b (+81% YoY, +52% QoQ) during the quarter.
* PAT stood at INR2.7b (est. of INR1.6m, +104% YoY, +56% QoQ).
* FY23 revenue stood at INR63b (+77% YoY), EBITDA was INR11.8b (+28% YoY), and EBITDA/scm came in at INR9.5 (v/s INR8.8 in FY22). Reported PAT stood at INR7.9b (+32% YoY).
* Total volumes were at 3.4mmscmd (+14% YoY).
* CNG volumes stood at 2.5mmscmd (+18% YoY), and total PNG volumes came in at 0.9mmscmd (+5% YoY).
* The board has declared a final dividend of INR16/share for the year.
Valuation and view
* MHGL added 12 new CNG stations, ~92k households, and 115 PNG-I/C customers. For Raigad GA, ~68k households were connected and 10kms of pipeline was completed.
* The management expects a 5-6% volume CAGR over the next few years, led by the recent cut in CNG prices and growth potential in Raigad GA. ? The stock trades at 12.4x FY24E EPS of INR87. We value it at 16x FY25E EPS to arrive at a TP of INR1,250. We maintain our BUY rating on MAHGL owing to its relatively cheaper valuations.
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