Mahanagar Gas (MAHGAS) 985

Transcription

1 Result Update Rating matrix Rating : Buy Target : 1085 Target Period : 12 months Potential Upside : 10% What s changed? Target Changed from 1055 to 1085 EPS FY18E Changed from 45.4 to 45.3 EPS FY19E Changed from 47.9 to 48.2 Rating Unchanged Quarterly performance Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%) Revenue EBITDA EBITDA (%) bps bps PAT Key financials Crore FY16 FY17 FY18E FY19E Revenues 2, , , ,685.0 EBITDA Net Profit EPS ( ) Valuation summary FY16 FY17 FY18E FY19E P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalization ( Crore) 9,729.8 Total Debt (FY16) ( Crore) 13.8 Cash and Investments (FY16) ( Crore) EV ( Crore) 9, week H/L 1053/493 Equity capital ( Crore) 98.8 Face value ( ) 10 Price performance Return % 1M 3M 6M 12M IGL (2.8) Gujarat Gas Mahanagar Gas Research Analyst Mayur Matani mayur.matani@icicisecurities.com Akshay Gavankar akshay.gavankar@icicisecurities.com Story remains intact... June 5, 2017 Mahanagar Gas (MAHGAS) 985 Mahanagar Gas (MGL) reported its Q4FY17 results, which were largely in line with our estimates on the profitability front. MGL's revenues posted an increase of 2.7% YoY at crore above our estimate of crore mainly on account of marginally higher realisations of 24.4/scm vs. our estimate of 23.7/scm. Volumes increased 4.6% YoY to 2.6 mmscmd on account of an increase in CNG as well as PNG volumes EBITDA at was slightly below our estimate of crore due to higher other expenses and employee costs. Subsequently, EBITDA/scm was at 6.9/scm vs. our estimate of 7.1/scm Reported PAT increased 17.6% YoY during the quarter to 99.5 crore, marginally lower than our estimate of crore Margins to remain healthy, going forward Gross margins in the quarter were at 13.4/scm vs. 12.4/scm in Q4FY16 in line with our expectation. However, the EBITDA/scm came in below our estimates at 6.9/scm (our estimate: 7.1/scm on account of higher employee costs and other expenses). Going forward, we expect margins to remain strong due to a stronger rupee and lower domestic gas prices adding to the competitiveness of CNG and domestic PNG over other liquid fuels. MGL s pricing power will enable it to pass on the increase in gas costs, if any, to customers, thus, maintaining margins. Hence, we expect gross margins at 13.7/scm FY18E and FY19E, and, EBITDA per scm at 7.3/scm and 7.2/scm in FY18E and FY19E, respectively. Volumes continue to show strength During the quarter, MGL s CNG volumes were strong at 1.9 mmscmd, up 5% YoY in line with our estimate on account of continued growth in CNG vehicle additions, which were at in Q4FY17. The latest mandate of states to convert app-based taxis to CNG in the next six months is expected to augur well for the company. The company is also aggressively setting up CNG stations and has added ~16 CNG stations in FY17. On the PNG front, volumes increased 9.3% YoY to 0.7 mmscmd in line with our estimates on account of growth in domestic and commercial sales volumes. MGL added households in Q4FY17 and has plans to add 1.4 lakh households in FY18E. MGL currently has 9.5 lakh domestic PNG, ~3100 commercial customers and ~70 industrial customers. Going forward, we estimate sales volumes at 2.7 mmscmd and 2.9 mmscmd in FY18E and FY19E, respectively, against 2.6 mmscmd in FY17. Favourable pricing, under-penetrated market to create value The CGD sector has benefited in a significant manner from the government s decision to prioritise the allocation of domestic natural gas for CNG and domestic PNG customers. This has enabled MGL to access cheaper gas for CNG and domestic business segments, constituting ~86% of total sales volume. MGL s strong gas pipeline infrastructure and expanding operations in Mumbai, its adjoining areas and Raigad district will enable the company to capture the benefits of the large and growing market given the low penetration. The ongoing and upcoming bidding for new CGD areas also presents MGL with a scope to expand its business further. We value MGL at 22.5x FY19E EPS of 48.2 to arrive at a target price of 1085 with a BUY recommendation. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q4FY17 Q4FY17E Q4FY16 YoY (%) Q3FY17 QoQ (%) Comments Total Revenues Raw materials costs Employees Cost Other Expenses Total Expenditure EBITDA Higher than estimated employee costs and other expenses led to marginally lower EBITDA than estimates. However, gross margins were at 13.4/scm in line with our estimates EBITDA margins (%) bps bps Depreciation EBIT Interest Other Income Extra Ordinary Item NA 0.0 NA PBT Total Tax PAT Key Metrics CNG volumes were at 1.93 mmscmd (our estimates: 1.95 mmscmd) whereas PNG Sales Volumes (mmscmd) volumes were at 0.7 mmscmd (our estimate: 0.7 mmscmd) Realisation ( /scm) Higher spot LNG prices lead to higher reaslisation Gross Margin ( /scm) Change in estimates FY18E FY19E ( Crore) Old New % Change Old New % Change Comments Revenue 2, , , , EBITDA Marginal increase in gross margins led to revised EBITDA estimates EBITDA Margin (%) bps bps PAT EPS ( ) Assumptions FY16E FY17 FY18E FY19E FY18E FY19E Comments Sales Volumes (mmscmd) , , ,063.3 Realisation ( /scm) Gross Margin ( /scm) Strengthening rupee led to marginal increase in gross margin estimates Current Earlier ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Volumes continue to show strength During the quarter, MGL s CNG volumes were strong at 1.9 mmscmd, up 5% YoY in line with our estimate on account of continued growth in CNG vehicle additions, which were at in Q4FY17. The latest mandate of states to convert app-based taxis to CNG in the next six months is expected to augur well for the company. The company is also aggressively setting up CNG stations and has added ~16 CNG stations in FY17. On PNG front, volumes increased 9.3% YoY to 0.7 mmscmd in line with our estimates on account of growth in domestic and commercial sales volumes. MGL added households in Q4FY17 and plans to add 1.4 lakh households in FY18E. The company currently has 9.5 lakh domestic PNG, ~3100 commercial customers and ~70 industrial customers. Going forward, we expect sales volumes at 2.7 mmscmd, 2.9 mmscmd in FY18E and FY19E, respectively, against 2.6 mmscmd in FY17. Exhibit 1: Volume estimates mmscmd FY15 FY16 FY17E FY18E FY19E CNG PNG Margins to remain healthy, going forward Gross margins in the quarter were at 13.4/scm vs. 12.4/scm in Q4FY16 in line with our expectation. However, the EBITDA/scm came in below our estimates at 6.9/scm (our estimate: 7.1/scm on account of higher employee costs and other expenses). Going forward, we expect margins to remain strong due to the stronger rupee and lower domestic gas prices adding to the competitiveness of CNG and domestic PNG over other liquid fuels. MGL s pricing power will enable it to pass on the increase in gas costs, if any, to the customers, thus, maintaining margins. Hence, we expect gross margins at 13.7/scm FY18E and FY19E, and, EBITDA per scm at 7.3/scm and 7.2/scm in FY18E and FY19E, respectively. ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 2: Gross margins estimate /scm FY15 FY16 FY17 FY18E FY19E Robust profit growth for next two years The revenue is expected to increase from 2239 crore in FY17 to 2685 crore in FY19E. PAT is expected to increase from crore in FY17 to crore in FY19E on account of strong volume growth. Exhibit 3: Revenue and PAT trend crore crore FY15 FY16 FY17 FY18E FY19E Revenue PAT ICICI Securities Ltd Retail Equity Research Page 4

5 Outlook & Valuation The CGD sector has benefited in a significant manner from the government s decision to prioritise the allocation of domestic natural gas for CNG and domestic PNG customers. This has enabled the company to access cheaper gas for CNG and domestic business segments, constituting ~86% of total sales volume. MGL s strong gas pipeline infrastructure and expanding operations in Mumbai, its adjoining areas and Raigad district will enable the company to capture the benefits of the large and growing market given the low penetration. The ongoing and upcoming bidding for new CGD areas also presents MGL with a scope to expand its business further. We value MGL at 22.5x FY19E EPS of 48.2 to arrive at a target price of 1085 with a BUY recommendation. Exhibit 4: Valuations Year Sales ( Crore) Sales Gr. (%) EPS ( ) EPS Gr. (%) PE (x) RoNW (%) RoCE (%) EV/EBITDA (x) FY FY FY18E FY19E ICICI Securities Ltd Retail Equity Research Page 5

6 Recommendation history vs. consensus estimate 1, , , ( ) (%) Jul-16 Oct-16 Dec-16 Mar May-17 Price Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jul-16 Mahanagar Gas Ltd (MGL) gets listed on BSE and NSE Oct-16 Domestic Natural Gas Prices decline to US$ 2.8/mmbtu from US$ 3.4/mmbtu based on GCV Oct-16 MGL reduces CNG and PNG prices due to reduction in domestic gas prices Dec-16 MGL hikes CNG and PNG prices due to increase in input tax Jan-17 MGL launches 100 scooters fuelled by CNG Feb-17 MGL declares interim dividend of 8/share Top 10 Shareholders Rank Investor Name Latest Filing Date % O/S Position Change (m) 1 Birla Sun Life Asset Management Company Ltd. 30-Apr Goldman Sachs Asset Management International 28/Feb/ Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar UTI Asset Management Co. Ltd. 28/Feb/ Amundi Hong Kong Limited 30-Nov Canara Robeco Asset Management Company Ltd. 30/Apr/ Russell Investments Limited 31-Mar First State Investments (Singapore) 30/Nov/ Schroder Investment Management (Hong Kong) Ltd. 31-Jan William Blair & Company, L.L.C. 31/Dec/ Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Jun-16 Sep-16 Dec-16 Mar-17 Promoter FII DII Others Recent Activity Investor name Investor name Investor name Value (m) Shares (m) Investor name Value (m) Shares (m) William Blair & Company, L.L.C Mirae Asset Global Investments (India) Pvt. Ltd Invesco Asset Management (India) Private Limited Goldman Sachs Asset Management International Mirae Asset Global Investments Co., Ltd FIL Investment Management (Singapore) Ltd CIBC Asset Management Inc Driehaus Capital Management, LLC BlackRock Institutional Trust Company, N.A Birla Sun Life Asset Management Company Ltd Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 Financial summary Profit and loss statement Crore (Year-end March) FY16 FY17 FY18E FY19E Revenue 2, , , ,685.0 Growth (%) Raw material Costs Employee Costs Other Expenditure Op. Expenditure EBITDA Growth (%) Depreciation EBIT Interest Other Income PBT Growth (%) Tax Reported PAT Growth (%) EPS Cash flow statement Crore (Year-end March) FY16 FY17 FY18E FY19E Profit after Tax Add: Depreciation Add: Others Cash Profit Increase/(Decrease) in CL (Increase)/Decrease in CA CF from Operating Activities Purchase of Fixed Assets (Inc)/Dec in Investments Others CF from Investing Activities Inc/(Dec) in Loan Funds Inc/(Dec) in Sh. Cap. & Res Less: Dividend Paid Others CF from financing activities Change in cash Eq Op. Cash and cash Eq Cl. Cash and cash Eq Balance sheet Crore (Year-end March) FY16 FY17 FY18E FY19E Source of Funds Equity Capital Preference capital Reserves & Surplus 1, , , ,004.1 Shareholder's Fund 1, , , ,102.9 Loan Funds Deferred Tax Liability Minority Interest Source of Funds 1, , , ,266.0 Application of Funds Gross Block 1, , , ,595.0 Less: Acc. Depreciation ,006.4 Net Block 1, , , ,588.6 Capital WIP Total Fixed Assets 1, , , ,002.5 Investments Inventories Debtor Cash Loan & Advance, Other CA Total Current assets Current Liabilities Provisions Total CL and Provisions Net Working Capital Miscellaneous expense Application of Funds 1, , , ,266.0 Key ratios (Year-end March) FY16 FY17 FY18E FY19E Per share data ( ) Book Value Cash per share EPS Cash EPS DPS Profitability & Operating Ratios EBITDA Margin (%) PAT Margin (%) Fixed Asset Turnover (x) Inventory Turnover (Days) Debtor (Days) Current Liabilities (Days) Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) PE Price to Book Value EV/EBITDA EV/Sales Leverage & Solvency Ratios Debt to equity (x) Interest Coverage (x) NA Debt to EBITDA (x) Current Ratio Quick ratio ICICI Securities Ltd Retail Equity Research Page 7

8 ICICIdirect.com coverage universe (Oil & Gas) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E Bharat Petroleum (BHAPET) Hold 53, Castrol India (CASIND) Buy 23, GAIL (India) (GAIL) Buy 69, Gujarat Gas (GUJGAS) Hold 10, Gujarat State Petronet (GSPL) Hold 9, Gulf Oil Lubricants (GULO) Hold 3, Hindustan Petroleum (HINPET) Hold 55, Indian Oil Corporation (INDOIL) Hold 206, Indraprastha Gas (INDGAS) 1,070 1,140 Buy 14, Mahanagar Gas Ltd (MAHGAS) 985 1,085 Buy 9, Mangalore Refinery (MRPL) Buy 23, Petronet LNG (PETLNG) Buy 33, NA NA NA ICICI Securities Ltd Retail Equity Research Page 8

9 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9

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