Add Mahanagar Gas Ltd for the Target Rs 1,300 by Emkay Global Financial Services Ltd
MGL’s 1QFY27 SA EBITDA/PAT of Rs3.4/1.9bn slightly missed our estimate by 3%/5%, largely owing to higher RM costs amid gas price spike and HH volume curtailment due to the ME crisis. However, earnings were a significant beat to street estimates. Volume grew 7% yoy to 4.77mmscmd, with CNG volume up 10% (2% beat), while I/CPNG volume declined 7% yoy (3% miss) due to ~20% curtailment. EBITDA/scm rose 28% qoq to Rs7.9, supported by softer HH prices and a 70-80% qoq uptick in I/CPNG realizations amid higher Brent. However, the near-term margin outlook remains uncertain, with pooled gas having been withdrawn and the shortfall being met through costlier spot/shortterm sourcing, while HH contracted volumes remain partly impacted by force majeure. However, the management maintains its long-term EBITDA/scm target of Rs8-9 and guides for ~8-9% overall volume growth, supported by healthy CNG growth, faster DPNG additions, and normalization of I/CPNG supplies. MGL intends to accelerate infrastructure rollout and front-load capex, raising FY27 capex guidance to Rs15-18bn from ~Rs12bn earlier. We cut FY27E EPS by 4% and FY28-29E EPS by 11-12%, factoring in lower other income and higher D/A amid increased capex funding. Rolling forward to Jun-28E, we raise WACC to 11.5% from 11.3%, with TP unchanged at Rs1,300; retain ADD.
Results highlights
SA EBITDA/PAT in 1QFY27 was up 32%/47% qoq and down 12%/18% yoy. PNG volumes remained flat yoy, largely owing to a 7% yoy decline in I/CPNG (3% miss) amid curtailment, while DPNG volume was up 9% (1% miss). Gross margin was up 9% qoq to Rs14.7/scm (2% miss), largely due to 12% qoq uptick in net realization to Rs54.5/scm (4% above estimate), while unit gas cost was up 13% qoq to Rs39.9/scm (7% above estimate). Unit opex rose 2% yoy/fell 7% qoq to Rs6.8/scm, with other expenses up 7% yoy/down 6% qoq to Rs2.5bn, while employee costs were up 25% yoy. Consequently, EBITDA/scm rose 28% qoq to Rs7.9 (down 17% yoy; 4% miss). D/A rose 2% qoq to Rs1.1bn, while other income was down 5% yoy at Rs304mn (up 5% qoq; 1% beat).
Management KTAs
UEPL volumes rose to 0.322mmscmd, with significant upside potential of ~1.2mmscmd, while Raigad volumes rose to ~0.4mmscmd from ~0.33mmscmd in 1QFY26. Brentlinked/spot LNG procurement remained relatively limited in 1Q. I/CPNG realizations rose Rs27-32/scm qoq, with CPNG seeing a sharper rise. Pooled gas allocation was withdrawn, though MGL has represented for reinstatement. BEST volume decline was largely offset by higher MSRTC/private bus additions. Long-term DPNG addressable market stands at 3.8-4.0mn households, of which ~3.3mn are connected and ~2.2mn are active.
Valuation
We value the merged entity using the DCF method, arriving at Jun-27E TP of Rs1,300. We raise WACC estimate to 11.5% from 11.3%. Key risks: Adverse pricing, margin, currency; high gas prices; open access; EV adoption; project delays; supply disruption.
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