Buy This Small Cap Oil & Gas Sector Stock For Target Price Rs 951, Stocks Will Ex-Dividend This Week

Stock Outlook & Returns

08 August, Monday, Mahanagar Gas Ltd. closed at Rs 817.70 apiece, the stock surged 4.14%. Currently trading Rs 161.9 below the 52-week low of Rs 665.80 apiece and Rs 388.6 above the 52 week high of Rs 1,206.30 apiece. 

 
 The stock surged 4.59% in a week, and 1.82% in 1 month, respectively. Over the past 1 year the stock has fallen 30.04%, whereas, in the past 3 years, the stock moved down roughly by 0.51%, respectively. In the past 5 years, the shares have fallen 23.01%.
 
 The ROE is 16.59%. TTM PE ratio is 13.53 and the PB ratio is 2.25. TTM EPS is 60.43. The dividend yield is 3.06% and the face value is Rs 10.

 

Dividend

On May 10, 2022, Mahanagar Gas declared a final dividend of Rs 15.50 per equity share i.e. 155 per cent having a face value of Rs 10 each for the financial year ending March 31, 2022. The declared dividend will trade ex-dividend on 11th August 2022.

The company has not announced the record date for the same. The company has declared 14 dividends Since August 2016. It has declared 7 final dividends, 6 Interim dividends, and 1 special dividend. The firm has announced a 250 per cent equity dividend, or Rs 25 per share, for the year 2022. This contains a 95 per cent interim payout and a final payment of 155 per cent. 

Volume and revenue in line, miss on margin

According to the brokerage firm, "Total volumes were 9% higher than our estimate at 3.4mmscmd (up 44% YoY and 9% QoQ). CNG volumes were at a record high of 2.5mmscmd (12% higher than our estimate, up 64% YoY and 12% QoQ). Total PNG volumes stood at 0.9mmscmd (2% higher than our estimate, up 7% YoY and 2% QoQ). EBITDA/scm was below our estimate at Rs 9.1 (est. INR10). Accordingly, EBITDA came in line at Rs 2.8b (down 6% YoY, but up 33% QoQ). Reported PAT stood in line at Rs 1.8b (down 9% YoY, but up 41% QoQ)."

Margin pressures persist; volumes at a record high

Mahanagar Gas reported an inline earnings. Record high volumes of 3.45mmscmd (up 44% YoY and 9% QoQ) has been offset by a softer EBITDA margin at Rs 9.1/scm (down 35% YoY). EBITDA stood at INR2.8b (down 6% YoY, but up 33% QoQ). While sales volumes were soaring higher in 1QFY23 due to a base effect, we expect a muted growth in FY24 over FY23 due to a lack of growth opportunities. Spot LNG prices have increased to ~USD41/mmBtu in Jul'22 from USD28/mmBtu in 1QFY23. Domestic APM gas prices are also expected to rise by ~50% from Oct'22, resulting in a pressure on EBITDA/scm. Mahanagar Gas has taken a few price hikes in FY23 till date. However, with each rise, incremental hikes become difficult. OMCs have also been seeking higher commissions. Around 65% of CNG volumes for Mahanagar Gas accrue from OMC outlets. Considering the above, we feel it is unlikely for MAHGL to maintain EBITDA margin at higher levels (like that in FY21). We lower our FY23/FY24 EBITDA margin to Rs 8.5/Rs 9 per scm and EBITDA by 14%/10%, led by an increase in gas costs. 

Volume and revenue in line, miss on margin

A volume boost is expected from further developments at Raigad (expect a peak demand of 0.6mmscmd over the next three-to-four years). PNG commercial penetration in MAHGL's GAs stands ~20%. It has the requisite pipeline infrastructure and only last-mile connectivity is required. All of the above should aid volume growth for the company, coupled with a boost from the increase in the need for personal mobility during the current COVID times. "Factoring in the same, we build in ~8% volume CAGR in FY24 over FY22. We value the stock at 13x FY24E EPS to arrive at our Target Price of Rs 951. We maintain our Buy rating," the brokerage has said.

About - Mahanagar Gas Limited

Incorporated in 1995, Mahanagar Gas Limited is one of India's leading Natural Gas Distribution Companies. GAIL (India) Limited (Maharatna Company) is the promoter of the company. Mahanagar Gas Limited has the distinction of pioneering Natural Gas distribution network in Mumbai, its adjoining areas and the Raigad district. Over 1.8 million domestic customers are connected through our wide network of over 6285 km. which comprises carbon steel (CS) and polyethylene (PE) pipelines. Domestic PNG is used for various purposes like cooking and water heating. It is also widely used by Hospitals, Nursing Homes, Hotels, Flight kitchens, Restaurants, places of Worship etc. PNG satisfies most of the requirements for fuel across all segments, being efficient, non-polluting and relatively economical.