Hold Mahanagar Gas Ltd For the Target Rs. 1,410 by PL Capital
Quick Pointers:
* Strong volume growth of 11% YoY; adj EBITDA/scm of Rs8.3
* Capex of Rs13bn/yr to fuel growth
We downgrade the stock from ‘Accumulate’ to “Hold” amid recent runup in the stock. MAHGL reported adj EBITDA of Rs3.2bn in Q4FY25, down 20% YoY (PLe: Rs3.6bn, BBGe: Rs3.5bn). Miss was mainly on account of higher opex. The adjustment is on account of reversal of discounts given to the OMCs of Rs633.5mn. Adj PAT came in at Rs2.1bn, down 22.6% YoY (PLe: Rs2.4bn, BBGe: Rs2.5bn). For the full year, adjusted EBITDA stood at Rs14.5bn, -21.5% YoY. FY25 adj PAT stood at Rs10bn, -22.7% YoY. We build in volume growth of 10% YoY for FY26/27 with EBITDA/scm of Rs10. We marginally revise TP to Rs1,410 based on 11x FY27E EPS. Downgrade to “Hold” due to limited upside in the stock. However, if there is any policy change encouraging adoption of CNG in its GAs or of PNG-industrial, it would further propel the stock.
* Healthy volume growth: CNG volume grew by 10% YoY to 2.93mmscmd while PNG ind/comm grew by 22% to 0.7mmscmd. PNG-dom grew by 4.7% to 0.6mmscmd in the quarter. Total volume stood at 4.2mmscmd in the quarter, +11% YoY. For the full year, volume stood at 4.05mmscmd, 12.3% YoY.
* Stable margin outlook: Adj gross margin stood at Rs15.6/scm in the quarter against Rs17.9/scm in Q4FY24 and Rs14.6/scm in Q3FY25 However, opex was higher at Rs6.4/scm vs Rs5.6/scm in Q4FY24 and Rs5.4/scm in Q3FY25. OPex was higher due to higher marketing expenses, CSR and maintenance cost during the quarter. As a result, Adj EBITDA/scm in Q4FY25 stood at Rs8.3 (PLe Rs9.4) vs Rs11.5 in Q4FY24 and Rs8.3 in Q3FY25. For the full year, Adj EBITDA/scm stood at Rs9.8 vs Rs14 in FY24.
* Conference call highlights: 1) Sourcing breakdown of 4.2mmscmd- APM- 2mmscmd, HPHT- 0.5mmscmd, 1.3-1.4mmscmd term contracts, rest through IGX, 2) term contract contains 1.27mmscmd HH contract, rest Brent linked, 3) EBITDA/scm guidance of Rs9-10, 4) capex guidance of Rs13bn/yr, 5) APM allocation has come down from 2mmscmd to 1.65mmscmd in Apr and NWG has increased from 0.mmscmd in Q4 to 0.65mmscmd in Apr, 6) opex higher due to CSR, maint and marketing costs, 7) added a record 98,000 vehicles in FY25
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