1
Jun 06, 2017
Mahanagar Gas Ltd
Recommendation (Rs.)
CMP (as on Jun 05, 2017) 984
Target Price 1053
Previous Target Price 1006
Upside (%) 7
Stock Information
Mkt Cap (Rs.mn/US$ mn) 97207 / 1510
52-wk High/Low (Rs.) 1055 / 487
3M Avg. daily volume (mn) 0.2
Sensex/Nifty 31309 / 9675
O/S Shares(mn) 98.8
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 65.0
FIIs 8.0
DIIs 9.8
Others 17.2
Relative Performance*
Source: Bloomberg; *Index 100
Expect Steady Performance Ahead
The average daily volumes during the quarter grew by 2.4% on QoQ basis. CNG
and PNG grew by 2.4% and 2.6% respectively. The sales during the quarter
increased by 2.7% YoY and 4.0% QoQ to Rs. 5764 mn. The company reported
EBITDA growth of 21.1% YoY; led by lower cost of natural gas. However, on QoQ
basis, it was down by 2.4% mainly due to higher R-LNG cost during the month
of Jan and Feb of 2017. Further, the net prot of the company grew by 17.9%
YoY mainly led by lower nance cost. On QoQ basis, the prot grew marginally to
Rs. 1011 mn.
CNG volumes to get aid: The government of Maharashtra announced City taxi
scheme 2016 under which it is mandatory for all app based taxis to run on cleaner
fuel. The timeline for these taxis to convert to CNG/cleaner fuel is Feb 2018E. There
are approximately 80,000 app based taxis; of which the management indicated that
around 10,000 are already running on CNG. Also BEST (Brihanmumbai Electric
Supply & Transport) is expected to add 303 new clean fuel buses to its eet. Of the
total, 75 buses have already become operational and remaining are expected to
come soon. This is expected to aid CNG volumes going ahead.
PNG connections: The company plans to add 0.13 mn domestic connections
in FY18E. During FY17, the company did 110.68 mmscm of volumes under PNG
domestic segment recording highest growth of 9.4% YoY. Going forward, we expect
the company to continue to maintain the momentum. We believe the segment to
report high growth in FY18E and FY19E.
Valuation and Outlook
MGL is one of the largest players in the CGD business, and sole supplier of CNG
and PNG in Mumbai and Raigad. The company also continues to maintain its zero
debt and healthy margins position. Given the strong demand for natural gas and
government support for the sector, we expect MGL to continue to perform well. We
believe MGL will benet from new taxi scheme and addition of new buses by BEST.
At CMP of Rs.984, the stock is trading at PEx of 20.6 of FY19E EPS of Rs. 47.9.
We assign a PEx of 22 and continue to maintain “HOLD” rating on the stock with
target price of Rs. 1053.
For private circulation only. For important information about Karvy’s rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 20949 20789 22391 24459 26980
EBITDA 4897 5130 6442 6979 7620
EBITDA Margin (%) 23.4 24.7 28.8 28.5 28.2
Adj. Net Prot 3011 3092 3928 4307 4727
EPS (Rs.) 33.7 34.6 39.8 43.6 47.9
RoE (%) 22.3 21.1 24.2 23.5 22.8
PE (x) 29.2 28.5 22.5 22.6 20.6
Source: Company, Karvy Research
Company Update
India Research - Stock Broking
HOLD
Analyst Contact
Radhika Pranjal Goyal
040 - 3321 6273
radhika.goyal@karvy.com
Utilities
Mahanagar Gas Ltd
Bloomberg Code: MAHGL IN
Earnings Revision (%)
YE Mar FY18E FY19E
Sales (%) (0.5) (0.4)
EBITDA (%) (0.2) 0.3
PAT (%) (0.2) (0.1)
Source: Karvy Research;
L
L
L
Stock Performance (%)
1M 3M 6M
Absolute (1) 14 32
Relative to Sensex (6) 5 11
Source: Bloomberg
L
L
L
90
120
150
180
210
240
270
Jun-16
Jul-16
Aug -16
Sep-16
Oct-16
Nov-16
Dec-16
Jan-17
Mar -17
Apr-17
May-17
Jun-17
Mahanag ar Gas Ltd
Sensex
2
Jun 06, 2017
Mahanagar Gas Ltd
Exhibit 2: Q4FY17
YE Mar (Rs. Mn) Q4FY17 Q3FY17 QoQ % Q4FY16 YoY % FY17 FY16 YoY %
Turnover 5764 5543 4.0 5614 2.7 22391 22858 (2.0)
Expenditure 4133 3872 6.7 4268 (3.2) 15949 17728 (10.0)
EBITDA 1631 1672 (2.4) 1347 21.1 6442 5130 25.6
Depreciation 257 247 3.8 210 22.1 951 841 13.2
Interest (1) 5 (115.2) 5 (114.3) 10 29 (65.4)
Other Income 130 124 4.4 145 (10.9) 527 427 23.3
PBT 1505 1544 (2.5) 1277 17.8 6007 4686 28.2
Ta x 510 554 (7.9) 433 17.8 2072 1600 29.5
PAT 995 990 0.5 844 17.9 3934 3087 27.4
Adjusted PAT 1011 992 1.9 857 17.9 3928 3092 27.0
EBITDA Margin (%) 28.3 30.2 (185) bps 24.0 431 bps 28.8 22.4 633 bps
EBIT Margin (%) 26.1 27.9 (184) bps 22.8 326 bps 26.9 20.6 624 bps
Net Prot Margin (%) 17.5 17.9 (36) bps 15.3 226 bps 17.5 13.5 401 bps
Source: Company, Karvy Research
Q4FY17 Performance highlights
The average daily volumes during the quarter grew by 2.4% on QoQ basis. CNG grew by 2.4% and PNG grew by 2.6%. PNG
domestic grew by 4.2%, industrial by 1.0% and commercial by 1.8%. The volumes increased to 2.62 mmscmd as compared to
2.56 mmscmd in Q3FY17.
The sales during the quarter increased by 2.7% YoY and 4.0% QoQ to Rs. 5764 mn. The company reported EBITDA growth
of 21.1% YoY; led by lower cost of natural gas. However, on QoQ basis, it was down by 2.4% mainly due to higher R-LNG cost
during the month of Jan and Feb of 2017. EBITDA per scm was Rs. 6.91 per scm in Q4FY17 as compared to Rs.7.10 in Q3FY17,
but was higher than Rs. 5.97 per scm Q4FY16. Further, the net prot of the company grew by 17.9% YoY mainly led by lower
nance cost. On QoQ basis the prot grew marginally.
The average daily volumes during the year grew by 5.7%. The CNG segment recorded growth of 5.3% and PNG of 6.8%. The
PNG-domestic grew by the highest amount by 9.4%
For FY17, the net sales fell by 2.0% YoY to Rs. 22391 mn. Led by lower prices of natural gas, the EBITDA grew by 25.6%. The
EBITDA margins were higher at 28.8% as compared to 22.4% in FY16. Led by higher other income and lower nance cost, the
net prot grew by 27.0% at Rs.3928 mn. The net prot margins were higher at 17.5% as compared to 13.5% in FY16.
Q4FY17 Key Takeaways of Conference Call:
The company added approx 15 CNG stations during the year and operates total 203 CNG stations by end of FY17.
During the quarter, the vehicle conversion rate was ~5666 per month. The company added 17,000 vehicles in the quarter as
compared to 18000 in Q3FY17. By the end of the year, total 0.545 mn vehicles were running on CNG.
The company added ~26,000 PNG domestic and 123 industrial/commercial connections during Q4FY17. The company had
total 0.95 mn PNG connections by end of FY17. The company plans to add 0.13 mn PNG connections in FY18E.
Added 100 kms of pipeline in FY17. The company has total pipeline network of 4,838 kms by end of FY17.
In Raigarh-GA3 (Geographical Area) - the company has identied 6 pockets for supplying natural gas. Pipelines are laid and
gasied in Uran. The supply of gas to start from June 2017E.
1 CNG station is set up at Karjat and gas sales stabilised. The company has identied new sites for setting up more CNG
stations which will be established during FY18E. During FY18E, the company plans to add 1,000 PNG connections in GA3.
Planned capex of Rs. 2000-2500 mn in FY18E.
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Jun 06, 2017
Mahanagar Gas Ltd
Exhibit 3: Change in Earnings Estimates
YE Mar - Standalone (Rs. Mn)
FY18E FY19E
Old New % Change Old New % Change
Net Sales 24592 24459 (0.5) 27079 26980 (0.4)
EBITDA 6992 6979 (0.2) 7595 7620 0.3
EBITDA Margin (%) 28.4 28.5 10 bps 28.0 28.2 19 bps
Adj . PAT 4317 4307 (0.2) 4733 4727 (0.1)
EPS (Rs.) 43.7 43.6 (0.2) 47.9 47.9 (0.1)
Source: Karvy Research
Key Risks
Adverse movement prices of domestic natural gas / R-LNG.
Unfavourable regulations from MoPNG and PNGRB.
Uncertainty over marketing exclusivity by PNGRB.
Delays in completion of expansion plans.
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Jun 06, 2017
Mahanagar Gas Ltd
Financials
Exhibit 4: Income Statement
YE Mar (Rs. Mn) FY15 FY16 FY17 FY18E FY19E
Revenues 20949 20789 22391 24459 26980
Growth (%) 11.1 (0.8) 7.7 9.2 10.3
Operating Expenses 16052 15660 15949 17480 19360
EBITDA 4897 5130 6442 6979 7620
Growth (%) 0.3 4.7 25.6 8.3 9.2
Depreciation & Amortization 799 841 951 1095 1240
Other Income 407 427 527 615 728
EBIT 4505 4716 6017 6499 7108
Interest Expenses 12 29 10 0 0
PBT 4493 4686 6007 6499 7108
Tax 1483 1600 2072 2192 2381
Adjusted PAT 3011 3092 3928 4307 4727
Growth (%) 1.3 2.7 27.0 9.7 9.7
Source: Company, Karvy Research
Exhibit 5: Balance Sheet
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
Cash & Bank Balances 1449 1721 1677 1327 621
Sundry Debtors 962 893 974 992 1172
Inventory 174 180 237 252 281
Loans & Advances 603 706 820 968 1144
Gross Block 16715 18450 20871 23392 26113
Net Block 10640 11596 13066 14492 15973
CWIP 3796 4289 4739 5289 5789
Miscellaneous 4032 4179 5001 6031 7040
Total Assets 21656 23563 26513 29350 32020
Current Liabilities & Provisions 6319 7000 8019 8647 8660
Debt 156 44 27 0 0
Other Liabilities 1106 1239 1246 1256 1266
Total Liabilities 7581 8283 9292 9902 9926
Shareholders Equity 893 893 988 988 988
Reserves & Surplus 13181 14386 16233 18460 21106
Total Networth 14075 15280 17221 19448 22094
Total Networth & Liabilities 21656 23563 26513 29350 32020
Source: Company, Karvy Research
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Jun 06, 2017
Mahanagar Gas Ltd
Exhibit 6: Cash Flow Statement
YE Mar (Rs. Mn) FY15 FY16 FY17E FY18E FY19E
PBT 4493 4686 6007 6499 7108
Depreciation 799 841 951 1095 1240
Interest 12 29 10 0 0
Tax Paid (1390) (1501) (2072) (2192) (2381)
Inc/dec in Net WC 660 471 736 426 (371)
Other Income (317) (254) (527) (615) (728)
Other non cash items 9 (19) (7) 0 0
Cash ow from operating activities 4267 4254 5099 5212 4867
Inc/dec in capital expenditure (1975) (2210) (2871) (3071) (3221)
Others (633) (76) (258) (385) (272)
Cash ow from investing activities (2607) (2286) (3129) (3456) (3493)
Inc/dec in borrowings 76 (18) 78 (27) 0
Dividend paid (1829) (1882) (2081) (2081) (2081)
Interest paid (8) (15) (10) 0 0
Cash ow from nancing activities (1761) (1914) (2013) (2108) (2081)
Net change in cash (101) 54 (44) (351) (706)
Source: Company, Karvy Research
Exhibit 7: Key Ratios
YE Mar FY15 FY16 FY17E FY18E FY19E
EBITDA Margin (%) 23.4 24.7 28.8 28.5 28.2
EBIT Margin (%) 21.5 22.7 26.9 26.6 26.3
Net Prot Margin (%) 14.4 14.9 17.5 17.6 17.5
Dividend Payout Ratio (%) 51.9 50.6 43.9 40.1 36.6
Net Debt/Equity (x) (0.1) (0.1) (0.1) (0.1) (0.0)
RoE (%) 22.3 21.1 24.2 23.5 22.8
RoCE (%) 30.7 29.6 34.3 33.2 32.3
Source: Company, Karvy Research
Exhibit 8: Valuation Parameters
YE Mar FY15 FY16 FY17E FY18E FY19E
EPS (Rs.) 33.7 34.6 39.8 43.6 47.9
DPS (Rs.) 17.5 17.5 17.5 17.5 17.5
BVPS (Rs.) 157.5 171.0 174.3 196.9 223.7
PE (x) 29.2 28.5 22.5 22.6 20.6
P/BV (x) 6.2 5.8 5.6 5.0 4.4
EV/EBITDA (x) 19.6 18.6 13.5 13.7 12.7
EV/Sales (x) 4.6 4.6 3.9 3.9 3.6
Source: Company, Karvy Research
6
Jun 06, 2017
Mahanagar Gas Ltd
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : <5%
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