PL Stock Report: Mahanagar Gas (MAHGL IN) - Q2FY24 Result Update – Volume growth to remain muted - HOLD

Mahanagar Gas (MAHGL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs1,015 | TP: Rs1,065

Q2FY24 Result Update – Volume growth to remain muted

Quick Pointers:

§ EBITDA/scm continued to remain strong at Rs 14.6/scm in Q2FY24

§ For H1FY24, EBITDA/PAT stands at Rs 10/7.1 bn, up 86%/103% YoY

MAHGL reported an EBITDA of Rs 4.8 bn in Q2FY24, down 8% QoQ and below PLe of Rs 5bn. PAT came in at Rs 3.4 bn, down 8% QoQ in line with estimates. Total volumes grew 5% QoQ to 3.6 mmscmd aided by growth in CNG and industrial PNG volumes. Total volume growth remains at 3% YoY. Although the company is taking few initiatives to rope in consumers, we believe the effect may not be significant. Hence, we build in a muted volume growth of 2% CAGR over FY24-26. We expect cost pressure as a result of the initiatives and build an EBITDA/scm of Rs13.5/10/10/scm over FY24/FY25/FY26. The stock is currently trading at 8.3x P/E and 5.5x EV/EBITDA. We maintain Hold rating on the stock with a target price of Rs 1,065 based on 12x FY26 P/E.

§ Marginal volume growth: Gas sales volume stood at 3.6 mmscmd, up 5% QoQ, aided by a 15% QoQ growth in industrial/commercial volumes which came in at 0.5 mmscmd. Domestic PNG sales at 0.5 mmscmd were down 1% QoQ. Total PNG sales at 1 mmscmd were up 7% QoQ. CNG volume at 2.6 mmscmd were up 4%. On a YoY basis, CNG volumes grew 2% while PNG volumes grew 8%. Going ahead we estimate a growth of 2% CAGR over FY24-26 to 3.7 mmscmd in FY26E.

§ Margins decline sequentially: Gross margin for Q2 was Rs 20.4/scm, down ~Rs2/scm QoQ. EBITDA at Rs 4.8 bn was down 8% QoQ due to higher expenses. EBITDA/scm came in at Rs 14.6/scm, down by Rs 2.2/scm QoQ, below Ple of Rs 15.5/scm. Going ahead domestic gas prices have been capped at US$6.5/mmBtu while spot LNG prices have risen to ~US$18/mmBtu owing to the approaching winter season. Factoring this in we estimate a EBITDA/scm of Rs 13.5/scm for FY24E and Rs10/scm for FY25E and FY26E.

§ Conference call Highlights: 1) 43,051 D-PNG connections were added taking the total number of households connections to 2.25 mn. Total pipeline length stands at 6,653 km. 7 CNG stations were added taking the total to 319 stations. 128 comm/ind customers were added taking the total to 4639 customers. 2) In Raigad GA, household connections stand at 70,650. 32 CNG stations were operational and total pipeline length stands at 393 km.3) The management has maintained its volume growth guidance at 6%. 4) EBITDA/scm guidance stands at Rs10-12/scm for next 2-3 quarters. 5) Sourcing mix is as follows: APM- 2.7 mmscmd, term contracts (Henry Hub, Brent linked RIL contract, HPHT)- 0.8 mmscmd, there was negligible Spot LNG sourcing. 6) Capex incurred in H1FY24 is Rs 3bn, while FY24 guidance stands at Rs 7-8bn

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