Mahanagar Gas Ltd

 

Dear investor,

Please find below mentioned short term fundamental stock for delivery purpose.

 Mahanagar Gas Ltd is in the business of City Gas Distribution (CGD), presently supplying Natural Gas in the city of Mumbai including its adjoining areas and the Raigad district, in the State of Maharashtra, India

Company	CMP	Target	BSE Code	NSE Code
Mahanagar Gas Ltd.	1076	1200	539957	MGL

 

Mahanagar Gas Ltd. (MGL) is a pioneer in Natural Gas distribution network in Mumbai and its adjoining areas. The Company has 5,630 kms of carbon steel (CS) and polyethylene (PE) pipeline supplying to over a million customers. In addition to domestic supply, it also supplies PNG to Hospitals, Nursing Homes, Hotels, Flight kitchens, Restaurants, places of Worship etc.
 Fundamental

• Market Cap:  10,625 Cr.
• Current Price:  1,076
• 52 weeks High / Low  1246.80 / 663.90
• Book Value:  298.92
• Stock P/E: 13.39
• Dividend Yield: 1.86 %
• ROCE: 37.25 %
• ROE: 24.32 %
• Sales Growth (3Yrs): 10.33 %
• Listed on BSE and NSE
• Face Value:  10.00

• PEG Ratio: 1.03
• Promoter holding: 32.50 %
• Pledged percentage: 0.00 %
• Debt:  66.61 Cr.
• Price to Earning: 13.39
• EPS:  80.34
• Net profit:  793.50 Cr.
• Profit growth: 45.22 %
• Profit growth 7Years: 8.54 %
• Net profit preceding 12months: 760.37 Cr.
• Profit growth 3Years: 20.68 %
• Dividend yield: 1.86 %
• Debt to equity: 0.02
• Sales last year:  2,791 Cr.
• Sales growth: 6.49 %
• Unpledged promoter holding: 32.50 %
• Investments:  1,121 Cr.
• Intrinsic Value:  1,330

Investment rationale

  Oneof the largest CGD (City Gas Distribution) company in India:  Established in 1995, MGL is the largest CGD Company in Mumbai and surrounding areas. Company has 256 CNG filing stations (Mar 2020) with compression capacity of 3.1 million kg/day, thus providing the gas to circa 0.72 million vehicles. It also supplies PNG to more than 1.27 million domestic customers, ~4021 commercial and industrial customers through a connected pipeline network of over 5630 km including 436 km of steel and 4873 km of polyethylene pipeline. The company operates in key Mumbai market which has a potential size of 20.7 million populations covering 3.1 household.

 

High entry barrier: Regulatory environment is creating high entry barrier for newer players. The company enjoys Infrastructure Exclusivity operations in Mumbai till 2020 and certain Adjoining Areas till 2030. The marketing exclusivity for Raigad is till 2040.

 

Lucrative CGD market backed by robust infrastructure:  MGL has asset base of 5630 kms of gas pipeline, 256 filling stations. MGL has further expanded its network in Raigad by operating 14 CNG stations and is planning to add 2 more stations in the coming financial year. It is also planning to extend its supply services across 5-6 towns like Pen, Ulwe, Roha, and Karjat amongst others, which are still under-penetrated, initially with the help of virtual pipeline network to serve domestic PNG customers. India’s per capita energy consumption is one-third of the global average, indicating potentially higher energy demand in the long-term. With rising demand for cleaner fuel, CGD demand is expected to reach 69 mmscmd by 2030 versus 15 mmscmd in 2015. Over and above, NITI Aayog’s agenda to expand CGD in 326 cities by 2022 from existing 228 authorized Geographical Area creates lucrative opportunity for MGL going ahead.

 

Outlook & Valuation:  The Company has a debt free balance sheet with cash and investment value of >Rs1,300 crore. The per share value therefore works out to be Rs137 per share. MGL enjoys high operating margins of >30% while return ratios are >25%. For FY20, the company reported a high double digit profit growth of 45.2% while revenue from operations grew at a slightly lower rate of 6.5% impacted by lower sales volume, except PNG-household due to COVID-19 led lockdown in the latter part of March 20. The EBITDA/scm was up by 18% yoy at Rs9.7 million. MGL has announced a total dividend of Rs25.5/share in addition to an interim dividend of Rs9.5/share, thus making the full year dividend of Rs35/share which translates into a dividend yield of 3.2%. Thought the management has refrained from providing any guidance due to demand destruction led by COVID-19 and the related lockdown, it plans to add 15 new CNG stations in FY21. The lockdown has affected volumes of many sectors as economic activity has collapsed; however, demand is expected to be relatively sooner for CGD companies as the lockdown lifts slowly. Also, lower input costs from USD3.23/mmbtu to USD2.39/mmbtu for the half year ending September 2020 provides relief on the cost front and augurs well for the margins. At current price, MGL trades at 14.4x of its one year forward earnings which looks very attractive than its peer IGL.

Positive:

Company is virtually debt free.

Company has been maintaining a healthy dividend payout of 41.05%

Negative:

The company has delivered a poor growth of 8.16% over past five years.

Promoter holding is low: 32.50%

Promoter holding has decreased over last 3 years: -32.50%

Duration of recommendation: Short to Medium term.
 

Best Regards,