Buy Mahanagar Gas; target of Rs 1036: KR Choksey
KR Choksey’s research report on Mahanagar Gas
Net sales came at INR 7.2 bn, (+23.1% YoY and -4.0% QoQ) driven by higher realizations but lower CNG and domestic PNG volumes on a YoY basis. Total sales volume for Q4 registered a growth of 7.4% YoY while declining by 0.74% QoQ primarily due to lost CNG volumes (-1.1% QoQ). Gross margins declined to 49.3% on a YoY basis (-109 bps) due to higher gas costs (+25.8% YoY) and a higher excise duty out-go (+24.5% YoY). OPM was further negatively impacted (-40 bps YoY, -216 bps QoQ) to 29.6% owing to higher employee costs (+15.0% YoY, +6.2% QoQ) and other expenses (+19.6% YoY, +9.7% QoQ). EBITDA stood at INR 2.1 bn. (+21.5% YoY, -10.5% QoQ). Lower finance cost (-44.4% YoY, -16.7%) and higher other income (+37.3% YoY, +16.9% QoQ) aided PAT at INR 1.3 bn (+27.4% YoY, -10.0% QoQ). The tax rate remained nearly unchanged at 34.9%. NPM declined by 123 bps QoQ while increasing by 62 bps YoY to 18.5%. The board has recommended a dividend of INR 10.5 per share on a FV of INR 10.
We valued the company by assigning a multiple of 18x on the FY20E EPs of INR 57.6 and arrived at target price of INR 1,036 (from INR 1,146 earlier) with a potential upside of 21.3%. We maintain BUY rating on the stock.
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