Sharekhan has given Buy recommendation for Mahanagar Gas with a target price of Rs. 1380 in its research report issued on Feb 10, 2021

Sharekhan’s research report on Mahanagar Gas

Q3FY2021 operating profit/PAT at Rs. 317 crore/Rs. 217 crore; up 22.4%/16.7% y-o-y and in-line with our estimates but were higher by 12%/10% versus consensus estimates led by a sharp recovery in gas sales volumes (up 32.2% q-o-q) and record-high EBITDA margins of Rs. 12.4/scm (up 34.8% y-o-y). CNG/Domestic PNG volume stood at 85%/124% of pre-COVID-19 level at 1.9 mmscmd/0.5 mmscmd; Industrial/Commercial (I/C) PNG volume declined by 9% y-o-y. Highest ever gross margins of Rs. 17.7/scm (up 27.6% y-o-y). Improving volume and sustainable high margin bode well for a strong Q4FY21. Double-digit volume growth guidance for FY22 and a 5-6% growth thereafter would drive an 18% PAT CAGR over FY21E-FY23E.

Outlook

MGL’s underperformance to Sensex is likely to reverse as earnings outlook has improved and overhang of open access is over. Valuation of 12.1x its FY23E EPS is most attractive in the CGD space. We retain Buy on MGL with an unchanged PT of Rs. 1,380.

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