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Highlights from the Quarter (Q3FY22):

Mahanagar Gas reported net revenue of Rs. 1,122.9 cr for Q3FY22, up 54% on a YoY basis and up 24% 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. 124.9 cr, translating to an EBITDA margin of 11.13%, down 3522 Bps on a QoQ basis and 2461 Bps on a YoY basis. 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. 56.8 cr for Q3FY22, at a net margin of 5.06%.

On the volumes front, total volumes for the quarter stood at 303.88 mn SCM. Of which, CNG comprised of ~72%, domestic PNG was at ~14% and commercial PNG at ~13%. The company continued to expand its pipeline network and added consumers across segments.

OUTLOOK AND VALUATION

MGL’s performance during the quarter came with a few surprises. While the company delivered a handsome revenue growth and is well on track to reach pre pandemic levels, the increase in gas prices led to severe margin erosion. The company is able to pass on the price increases albeit with a lag. We expect the company to return to its original margin profile once gas prices stabilize and keep our estimates for MGL unchanged for the time being, and maintain our view on the company. We maintain our BUY rating for a target price of Rs. 1,378 which is an upside of ~73% from the current market price of Rs.798 over an investment horizon of 18-24 months.

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