Buy Mahanagar Gas Ltd. For Target Rs. 2,100 By Emkay Global Financial Services
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Robust performance
MGL reported a strong 13% YoY SA volume growth in Q1FY25 to 3.86mmscmd (a 2% beat), combined with a 15% QoQ growth in UEPL to 0.17mmscmd (1.0- 1.3mmscmd potential in 6-7yrs). Q1FY25 SA EBITDA/PAT of Rs4.2bn/Rs2.8bn were both 11% above our estimates, led by better gross margins as well as volumes. EBITDA/scm rose 4% QoQ to Rs11.9 (a 9% beat). UEPL also turned black, with Rs100mn PAT. The mgmt. reiterated its long-term volume CAGR guidance of 6-7% and Rs10-12/scm EBITDA. Q1 capex was Rs2.5bn, while FY25 target for CNG station additions in SA/UEPL is 50/25 vs. historical average of ~20 in SA. We raise FY25-26 earnings by 5% each, building-in better volume. We raise rolled-over Sep-25E TP by 25% to Rs2,100/sh, and retain our positive stance led by a better volume-margin profile over peers; reiterate BUY.
Results Highlights
Q1FY25 SA EBITDA/PAT was down 20%/23% YoY and up 6%/7% QoQ on a high margin base YoY. CNG volume grew 12% YoY and 4% QoQ, coming in at 252mmscm. PNG was up 17% YoY/down 2% QoQ, with I/C up 24%/down 2% and DPNG up 10%/down 3%. Gross margin was flat QoQ at Rs17.8/scm, but came at an 8% beat to our estimates on 1% higher realizations and 2% lower gas cost. Unit opex rose 8% YoY but fell 7% QoQ to Rs6.0/scm (6% higher). EBITDA/scm hence fell 29% YoY, but rose 4% QoQ to Rs11.9. D/A fell 7% QoQ, whereas Other Income was up 3% YoY/down 10% QoQ at Rs402mn (Emkay: Rs516mn). MGL added 2 new CNG stations, 35,544 DPNG customers, and 104 I/C customers in Q1FY25, with pipeline network of 85.5km. UEPL added 1/341 CNG station/DPNG connections in Q1, and cumulated 57/27,339 as of end Jun-24. MGL has incurred Rs2.5bn standalone capex in Q1FY25.
Management KTAs
APM gas allocation stood at 69% in Q1, with a similar current run-rate. The company plans to keep adding HP-HT volumes, to counter lower APM allocation, and thereby keeping blended gas costs in the priority segment largely stable. CNG vehicle addition in Q1FY25 stood at 20,800 (vs 20,100 QoQ). MGL is witnessing >1,000 LCV additions per quarter, while the total LCV universe is ~28k. The mgmt. guides to mid-teens volume CAGR for UEPL, with volumes reaching 1.0-1.3mmscmd in the next 6-7 years, supported by infrastructure expansion and higher adoption. UEPL’s unit EBITDA is similar to MGL’s run-rate. MGL expects to add 200 MSRTC buses in the next 2 quarters, with per-day consumption run-rate per bus at 80-90kg. Total buses run by MSRTC are 17k, of which 6k buses touch MGL’s GAs. Steady growth in the DPNG segment is expected to continue.
Valuation
We value MGL on SoTP basis, wherein both, its standalone business and UEPL, are valued using the DCF methodology. Our SOTP-DCF-based Sep-25E TP is Rs2,100/share, implying ~14.5x Sep-26E consol. target P/E. Key risks: Adverse pricing, margin, and currency scenarios; high gas prices; open access; rate of EV adoption; project delays.
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