IGI Logo

Volumes in line; lower EBITDA spreads impacts the performance

Mahanagar Gas Limited (MGL) delivered a poor Q2FY25, with a 4.8% QoQ decline in EBITDA to Rs4bn and a sequentially flat PAT at Rs2.8bn. Strong CNG volumes with in-line growth of 11.7% YoY and 4.1% QoQ while EBITDA spreads were weaker on falling APM supply despite price hikes in CNG. We expect the volumes to grow by ~8.5%, but EBITDA spreads should be lower in FY25 as compared to FY24 (peak profitability). We upgrade our rating to BUY given a sharp correction in the stock price, with a revised TP of Rs 2,230/shr (earlier Rs 2,290/shr).

Result Highlights

* Performance: EBITDA at Rs4bn was down 16.8% YoY and 4.8% QoQ. PAT at 2.8bn was down 16.5% YoY and flat QoQ. Overall performance was lower than consensus estimates and ours with CNG volume reaching new highs. The volumes are in line to ours, EBITDA spreads weaker with higher gas costs and opex.

* Volumes: Overall volumes at 4.04mmscmd (vs our est of 4.05) was up 13.1% YoY and 4.7% QoQ. CNG volumes at 2.89mmscmd (new high) vs our est of 2.94, were up 11.7% YoY and 4.1% QoQ. D-PNG volumes at 0.53mmscmd were up 7.5% YoY but down 3.5% QoQ. Industrial and commercial sales at 0.63mmcsmd at high, is up 25.4% and 16.6% QoQ.

* Gross realization: Realizations stood strong at Rs45.8/scm on CNG price increase, declining 3.7% YoY and up 1.7% QoQ, probably supported from higher industrial PNG realizations as well. The CNG price was increased by the company on 9-Jul’24 by Rs 1.5/kg to Rs75/kg.

* Gross Margins (GM): The gas cost was up 6.2% YoY and 6.4% QoQ on falling APM supply and higher spot LNG prices. The gross margins were at Rs17/scm, declined 16.9% YoY and 5.3% on QoQ basis

* Opex: The opex at Rs6.3/scm (higher than our estimates) was higher by 6.9% YoY and 4.1% QoQ, with other operating expenses being higher by 18.3% YoY and 5.3% on QoQ basis.

* EBITDA spreads: EBITDA spread at Rs 10.7/scm (lower than our est of 12.2) is down 26.4% YoY and 10.1% QoQ. The EBITDA spread stood weaker sequentially despite a price increase in CNG.

* H1FY25 performance: EBITDA/PAT was at Rs 8.2/5.7bn vs Rs 10/7.1bn last year. The volumes at 3.95mmscmd (vs 3.49 last year), of which CNG was at 2.83mmscmd vs 2.53. The EBITDA spread was at Rs 11.3/scm vs 15.7 last year.

Valuation

We expect a 8.5% volume CAGR over FY24-27 with a spread of Rs 11/11.5/11.7/scm in FY25/26/27. The stock is trading at 13.4x/11.8x/10.7x PER FY25e/26e/27e. We upgrade our rating to BUY given a sharp correction in the stock price, with a revised target price of Rs 2,230/share (vs earlier Rs 2,290/shr), expect a strong volume growth versus historical average, support from better cash flows and healthy balance sheet.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632