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Restricted APM supply drives a miss  

Our view

The 2QFY22 earnings missed estimates as limited APM supply during the quarter, pushed MAHGL to shift its dependence on expensive RLNG, to fulfill the demand in priority CNG and PNG ‐domestic segments, to the extent of ~5%. In addition, higher LNG price environment also impacted profitability in commercial and industrial segments.

The gas sales nevertheless had a smart recovery of 30% QoQ, after a weak 1Q, when Covid‐2nd wave impacted sales. High petrol & diesel prices (alternate fuel) compared to CNG, continue to drive higher CNG adoption, with addition of ~16800 CNG vehicles. Going ahead, expected increase in APM gas price, and high LNG price environment, could continue to put pressure on margins, We therefore accordingly adjust our estimates and revise our TP to Rs 1,365/sh (from Rs 1,445)

Result Highlights

* 2QFY22 Profitability:  Reported EBITDA and PAT stood at Rs 3.01bn (+36% YoY; ‐0.7% QoQ) and Rs 2.04bn (+42% YoY; +0.1% QoQ). The strong YoY growth stemmed from weaker base quarter, when lockdown in wake of Covid 1st wave had impacted sales. On a sequential basis even as gas sales improved by 30%, profitability was flat on sequentially weaker operating margins.  

* Gross Margin: The gross margin for the 2Q stood 20% sequentially lower at Rs 15.6/scm, as higher LNG price environment raised blended gas costs by 52% QoQ.

* EBITDA per unit: The EBITDA per unit stood at Rs 10.5 (vs  Rs 13.9/scm in 1Q) sequentially weaker  by 25% on translation of weakness in gross margins, offset partially by 7.5% QoQ lower per unit operating expense.

* Gas Sales: The total gas sales during the quarter stood at 3.12mmscmd (CNG: 2.23mmscmd; PNG 0.89), which is about 51% higher YoY and  30% higher  QoQ. The CNG sales witnessed a strong sequential recovery after impact of Covid ‐2nd wave in 1QFY22.  

* Infrastructure development: During the 2QFY22, MAHGL added a) 3 CNG stations in GA‐I&II, taking the total to 277, b) 49.36km of pipeline in GA‐1&II taking total to 6000km & 31.1km in GA‐III taking total to 291.8km.

* Customer addition: During the quarter, MAHGL added 78214 domestic and 77 Industrial & Commercial (I&C) consumers in GA I & II, taking total domestic consumers to  1.71mn and 4219 I&C consumers .

Valuation

We maintain our BUY rating, albeit with a revised, Mar’23, DCF based TP of Rs 1365/sh (from Rs 1445/sh). A moderation in the 2QFY22 margins and plausibility of further stress on margins as a) global LNG prices stay elevated and b) high probability of further increase in domestic APM price come Apr’22, led us to revise our estimates in our forecast period.

However, MAHGL raised CNG and domestic PNG prices in two steps on Oct 5th and Oct 14th and remains positive about passing on any further increase in natural gas prices. In addition, lack of adequate availability of APM gas for priority sector in 2QFY22, was concerning, while MAHGL remains confident of resumption of supply and has made requisite representation to the MoPNG, but a disappointment on that count, could impact margins and valuations further.  

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