Accumulate Mahanagar Gas Ltd for Target Rs 1,308 by Elara Capital
Margin reset deepens
The stock price of Mahanagar Gas (MAHGL IN) has been weak for the past three months, led by concerns over higher gas cost, lower APM availability for CNG , and disruption -led dependence on pooled & spot gas. Q4FY26 was a tepid quarter, with EBITDA at INR 2.6bn, down 21% YoY & 28% QoQ and PAT at INR 1.3bn, down 32% YoY and 37% QoQ, below our estimates of INR 3.1bn and INR 1. 8bn, respectively . EBITDA/scm declined sharply to INR 6.2 vs INR 8.4 in Q4FY25 and INR 8.5 in Q3FY26, led by higher gas sourcing cost and incomplete CNG price pass -through. We cut our TP to INR 1,30 8 from INR 1,383 . We retain Accumulate.
Gas cost shock drives earnings decline:
Av era ge gas cost rose 9% YoY and 6% QoQ to INR 35.2/scm, while blended realization improved a mere 2% YoY to INR 48.7/scm. As a result, gross spread compressed to INR 13.6/scm from INR 15.7/scm in Q4FY25. The quarter took a hit from an adverse gas mix in March, as Henry Hub -linked supply was curtailed & optimized and pooled & spot gas dependence increased due to West Asia -related LNG supply disruptions. Management took a mere INR 1/kg CNG price hike post quarter -end, implying the cost pass -through remains incomplete.
Volume remains healthy, led by CNG and industrial & commercial (I&C):
Total volume grew 6% YoY to 4.6mmscmd in Q4FY26. CNG volume grew 7% YoY to 3.3mmscmd, supported by continued vehicle additions. Domestic PNG volume grew 2% YoY, while I&C PNG volume grew 5% YoY despite supply curtailment in March. Management says CNG and domestic PNG supply was protected, while I&C supply was curtailed to ~80% during the disruption.
Policy push supports PNG acceleration:
Recent policy measures around faster permissions, deemed approvals for road digging, lower road reinstatement charges , and easier pipeline access can accelerate PNG network rollout. MAHGL sees strong opportunity in domestic and commercial PNG. However, the company cautioned incremental domestic PNG customers in extended suburbs may have lower per -capita consumption; hence , a 20% increase in active customers may translate into mere ~12% volume growth.
FY27 earnings cut reflects full-year margin reset:
We revise down our EBITDA by 15% for FY27E and 6% for FY28E . Revenue estimates remain broadly resilient due to price hikes. We assume EBITDA/scm at INR 7.8 in FY27E, INR 8.6 for FY28E, and INR 8.6 in FY29 E vs INR 8.1 in FY26. FY27 may reflect the full -year impact of lower CNG APM availability, elevated pooled & spot gas cost and delayed pass -through, while FY28 -29 should see gradual recovery as sourcing normalizes and pricing actions annualize.
Retain Accumulate with a lower TP ofINR 1,308:
We cut our TP to INR 1,308 from INR 1,383, but we retain Accumulate. In our view, t he near -term earnings reset is material, but +10 YoY volume growth remains intact, supported by CNG addition, PNG policy push , and expansion in new geographies. Key monitorables are further CNG price hikes, pooled & spot gas availability, Henry Hub -linked supply normalization, and industrial & commercial PNG recovery. Our DCF -based TP assumes a long -term EBITDA/scm margin at INR 8. 6/scm ( unchanged ), a WACC of 11.5% (unchanged) and FY2 6-29E volume CAGR of 11. 4% (from 10.8%).We introduce our FY29 estimate.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
