MGL expects to connect 200k households in FY19, 20% higher than FY18, and add 35 CNG stations (20 in FY18).
Mahanagar Gas reported disappointing Q4FY18 numbers with EBITDA at Rs 180 crore (up 8% YoY, down 12% QoQ), 15% below estimate. Key highlights: 1) volumes, at 2.8mmscmd, rebounded 7% YoY & came broadly in line with CNG and PNG volume growth of 7% YoY each; and 2) EBITDA margin fell 12% QoQ to Rs 7/scm, 15% below estimate.
We estimate MGL’s volumes to grow 7% over FY18-22 driven by higher conversions from private vehicles & ride aggregators and increased penetration of domestic PNG. We have revised down FY19/20E volumes 3%/4% and EBITDA margin by 4% for each year, assuming higher feedstock cost and rupee depreciation. Hence, we cut our DCF-based TP to Rs 1,056, factoring in revised risk-free rate of 7.8%. Maintain ‘BUY’.
CNG volumes stood at 2.1mmscmd (up 7% YoY; in line), domestic PNG at 0.4mmscmd and industrial/commercial (I/C) at 0.4mmscmd (up 5% YoY; 4% below). Volume growth recovered to 7% YoY in H2FY18 versus 6% average growth over the past five years. EBITDA margin dipped to Rs 7.0/scm due to higher operating expense and rise in spot LNG price. CNG conversion picked up to 6.5K vehicles/month on higher conversions by auto-rickshaws, cab aggregators and private vehicles.
MGL expects to connect 200k households in FY19, 20% higher than FY18, and add 35 CNG stations (20 in FY18). We estimate robust CNG volumes with higher conversion from private cars & taxis as CNG has gained further competitiveness due to spike in petrol/diesel prices. The company is evaluating 20 new geographic areas (GAs) under the upcoming round-9 of CGD auctions. MGL will likely pass-on any rise in input cost due to adverse dollar/rupee and higher LNG price. We estimate volume CAGR of 7% over FY18-22 (8% earlier), led by enhanced coverage across Mumbai-Pune corridor and Raigad. Over FY18-20, we estimate 7% PAT CAGR and robust RoE at 21%. We maintain ‘BUY’ with revised DCF-based TP of Rs 1,056.
During FY18, MGL added 160k households of which 103k connections have commenced consumption, expects addition of ~200k connections in FY19.