Buy Mahanagar Gas; target of Rs 1187: Edelweiss

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Edelweiss' research report on Mahanagar Gas

Mahanagar Gas’ (MGL) Q1FY18 performance was a mixed bag. PAT, at INR1.2bn (up 34% YoY, 25% QoQ), surpassed estimate 15% purely driven by margin expansion, while volumes missed estimates. Key highlights: 1) muted volume growth: Overall volumes at 2.6mmscmd (up 3% YoY, down 1% QoQ) missed estimate 5% (CNG: 1% YoY, 5% miss; PNG: 7% YoY, 3% miss); and 2) EBITDA margin at INR8.7/scm (up 30% YoY, 26% QoQ) surpassed estimate 25% benefiting from stronger INR, lower feedstock price (APM, spot LNG) and better CNG sales mix. We have revised up FY18/FY19E EPS 4%/2% factoring lower volume growth offset by better margin and revised up our DCF-based TP to INR1,187 (INR1,113 earlier) on revised earnings and lower discount rate. Maintain ‘BUY’.

Outlook
Over FY17-20, we estimate 14% PAT CAGR and robust RoEs at 20% plus. At CMP, the stock is pricing in inadequate EPS growth of 9% over 15 years. We maintain ‘BUY’ with TP of INR1,187 factoring revised risk-free rate of 6.5% versus 7.0% earlier.For all recommendations report, click here

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