Mahanagar Gas Limited (MGL) is a prominent natural gas distribution company in India. MGL is promoted by GAIL (India) Limited (a Maharatna Company of the Government of India). Following the company's Q4FY22 result update, the brokerage firm Prabhudas Lilladher initiated a buy call rating with a target price of Rs1,103, compared to the current market price of Rs 750.
Q4FY22 Result Update
The brokerage has said in its latest research report that "Mahanagar Gas (MGL's) reported higher than expected results with Q4 EBITDA and PAT at Rs2.1bn (+109% QoQ; PLe Rs1.2bn) and Rs1.3bn (+132% QoQ; PLe: Rs733mn). In FY22 EBIDTA/PAT was at Rs9.2bn (-1%YoY) and Rs5.9bn (-4%YoY). Higher Q4 blended realization of Rs41.6/scm (+12.7%QoQ) supported gross margins at Rs16.8/scm v/s Rs11.8 in Q3FY22, as gas cost was Rs24.8/scm (- 2%QoQ) due to low LNG usage. Opex/scm was at Rs5.7/scm (Rs5.3 in Q3) and EBIDTA spreads were higher at Rs7.6/scm (Q3FY22:Rs3.4/scm; PLe Rs4.0/scm). In FY22 EBIDTA/scm was at Rs8.4 vs Rs11.6 in FY21 as sharp increase in gas prices hit profitability."
According to the brokerage "Q4 CNG and PNG volumes were at 205mscm (-7% QoQ) and 80.3mscm (-4% QoQ). However receding pandemic concerns, rising vaccination coverage and opening up of schools will further support volumes. We have cut our FY23/24E volume growth by ~6% each to 3.5/3.7mmscmd (3.7/3.9 earlier), as we factor moderate growth in high gas cost environment."
Buy for a target price of Rs 1,103
The brokerage has claimed that "MGL has tied up 0.25mmscmd gas supplies for medium term contract to tide over high spot LNG prices. Also reduction in spot LNG prices to ~$20/mmbtu from #35/mmbtu will ease cost pressure in near term. Our FY23/24E margins factor in Rs8.8/9.5/scm. We believe economic factors such as 1) introduction of new CNG buses by state government, 2) new three wheelers along with geographical expansion to Raigad and Karjat will support volumes. Also, government's push towards PNG's domestic connections will add volume traction."
"We lower our FY23/24E estimates by 22%/16% to factor lower volumes (-6% each) and lower margins (Rs8.8/Rs9.5 vs earlier Rs10.2 earlier). Q4 results were ahead due to higher than expected margins supported by reduced spot LNG purchase and lower volumes. MGL remains a play on increased gas usage from rising vehicles and PNG penetration. We like the business because of its dominating share in growing markets of Mumbai and its suburbs. Reiterate 'BUY' with a TP of Rs1,103 (Rs1,187 earlier)," said Prabhudas Lilladher.
The stock has been picked from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.