Motilal Oswal has given Buy recommendation for Mahanagar Gas recommended buy rating on the stock with a target price of Rs 1200 in its research re with a target price of Rs. 1200 in its research report issued on Oct 27, 2021
Motilal Oswal’s research report on Mahanagar Gas
Mahanagar Gas (MAHGL) reported mixed 2QFY22 results, with volumes 11% higher than our estimate at 3.1mmscmd, while EBITDA/scm was lower at INR10.5 (v/s our estimate of INR12.5 and INR13.9 in 1QFY22). Thus, EBITDA came in line (at INR3b) with our estimate. The volume recovery was strong as economic activities returned to normal, with total volumes growing further by 7-8% in Oct’21 (~3.34mmscmd). The EBITDA margin decline in 2QFY22 was due to a sharp spike in spot LNG prices. The demand for CNG went up drastically post the easing of the second COVID lockdown, due to which MAHGL had to use spot LNG for ~5% of priority gas volumes. This percentage increased further as volumes ramped up. MAHGL has requested the Ministry for using average gas volumes for 2Q to allocate priority gas volumes for 2HFY22.
The stock trades at 12x FY23E EPS of INR83, and upon valuing it at 14x Dec’23E EPS, we arrive at a target price of INR1,200. Maintain Buy.