Narnolia Securities Ltd. ADITYA GUPTA 15-Feb-18

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1 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb Feb-18 INDUSTRY - Bloomberg Code: Gas Distribution MAHGL IN BSE Code NSE Code - MGL NIFTY % 23% 22% 21% 18% 17% 16% Company Data CMP 1048 Target Price 1251 Previous Target Price 1260 Upside 52wk Range H/L Mkt Capital (Rs Cr) Av. Volume (,000) RoE to maintain over in FY19E 23% Shareholding patterns % 1377/844 10, Key Highlights of the Report: Higher realization coupled with strong volume grwoth led stellar performance in Q3 FY18. Growth momentum is expected to be continued Company going ahead. is amplifying its network in adjoining areas of Mumbai and will add 1.5 lakh new connection every year which will boost PNG volume with the CAGR of 8-10% in coming fiscal. Financials/Valu FY15 FY16 FY17 FY18E FY19E Net ation Sales 2,292 2,285 2,239 2,472 2,777 EBITDA EBIT PAT QFY18 2QFY18 1QFY18 EPS (Rs) Promoters EPS growth (%) 1% 3% 14% 27% 13% Public ROE (%) 18% 21% Total ROCE (%) 30% 35% 35% BV Stock Performance % P/B (X) Mn 3Mn 1Yr P/E (x) Absolute (5.2) (6.6) % Rel.to Nifty (3.5) (9.6) (6.7) Concall Highlights: MGL NIFTY At present 1 CNG station in both Kharghar and Raigad district and total 6 stations(khargar -3, Raigad-3) are under construction ADITYA GUPTA aditya.gupta@narnolia.com 21% 24% FY14 FY15 FY16 FY17 FY18E MGL plans to add 20 new CNG stations every year in order to ensure 7-8% growth annually. We expect ROE to improve by bps to in FY19e on the back of strong volume growth. We reiterate "BUY"rating in this stock with the target price of Rs.1251 (18.4x FY19e EPS). Management has guided for 6 to 8% growth in volume in FY18. Management do not expect any impact on the margins and will be able to pass on the gas price hike on the consumers. Management has guided for 1 Lakh new connections in FY18 and 1.5 lakh connections in FY19. MGL plans to expand in authorized areas of Kalyan, Dombivali, Ambernath, Badlapur, Ulhasnagar, Bhiwandi, Panvel, Taloja and Kharghar Capex for FY18- Rs Cr which is to be done through internal accruals Management does not expect any major impact on arrival of electric vehicles, as CNG is the second cleanest fuel and there are multiple challenges in electric vehicles. Please refer to the Disclaimer at

2 Quarterly Performance Financials 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 YoY % QoQ% FY16 FY17 YoY % CNG volume (SCM % 1% % Million) PNG volume (SCM % 4% % Million) Net Sales % 2,285 2,239-2% Other Income % 2% % COGS % 14% 1,230 1,018-17% Employee Cost % 1% % Other Expenses % 18% % EBITDA % % Depreciation % 4% Interest 0.5 (0.1) % PBT % 0% % Tax % 1% % PAT % % Results in line with estimates on back of robust volume growth in both CNG and PNG Revenue has increased by to Rs. 638 Cr in 3QFY18 as compared to Rs. 554 Cr in the same quarter in FY17 on account of robust volume growth of 7% and 8% in CNG and PNG segment respectively. During the quarter the CNG realization has improved to Rs per SCM which is 6% higher than the same period of FY17. During the quarter the PNG realization has increased to Rs per SCM which is 11% higher than the same period of FY17. EBITDA margin has improved by 130bps to 31.5% in 3QFY18 mainly due to higher realization in both the CNG and PNG segment. During the quarter company has added 15,000 new PNG connections due to which total number of PNG connections grown to 10 lakhs. Profit after tax has improved to to Rs. 124 Cr in 2QFY18 as compared to Rs. 99 Cr in the same quarter in FY17 on account of higher revenue and better margins as compared to same period of FY17. As per management, total number of CNG vehicles in Mumbai has increased by 12% to 5.9 Lakh till Dec EBITDA (Rs. Cr.) EBITDA M% 35% 34% 30% 31% 29% 28% 28% 23% 24% 40% 35% 30% 10% 5% 0% PAT (Rs. Cr.) PAT M% 13% 17% 18% 18% 17% 21% 21% 10% 5% 0%

3 Investment Arguments: PNG Volume Growth- Mahanagar Gas has added 15,000 new customers in Q3FY18 and has targeted to add more than 1 lakh new PNG customers in FY18 and 1.5 lakh in FY19, which will improve the PNG volume by 7% till March Growth opportunities- Government now allocates domestic natural gas upto 110% demand of CNG and domestic PNG. This gives us the assured availability and cost advantage against other competing fuels such as petrol, diesel and high speed diesel, paving the way for volume growth in future. CNG volume growth- With the target of adding 20 new CNG stations every year, management is planning to grap the un tapped market in the most possible manner. Bidding for new Goegraphies - MGL plans to expand in authorized areas of Kalyan, Dombivali, Ambernath, Badlapur, Ulhasnagar, Bhiwandi, Panvel, Taloja and Kharghar. 2 wheeler CNG- On 1 Jan 2017, company has launched CNG-fueled Two-Wheelers in Mumbai.Higher cost of two-wheeler CNG kit ~ Rs ,as these Kits are currently manufactured outside India.The cost of kit will cut by ~30% once these kits were manufactured in India. No threat from Electrical vehicles in near to medium term- We does not expect any major impact of arrival of electric vehicles in near to medium term, as CNG is the second cleanest fuel and there are multiple challenges (like infrastructure development, charging time, availability etc.) in electric vehicles. Challenges- Mumbai is heavily populated city and the company is facing challenges to obtain space to open new outlets. Volume Trend CNG volume (SCM Million) PNG volume (SCM Million) View & Valuation Mahanagar gas has reported another good set of numbers. It has reported sales and PAT growth of and YoY respectively in Q3 FY18. This growth is driven by PNG segment which records sales growth of 21% YoY and volume growth of 9% YoY. In Q3 FY18, company has added 15,000 new connections and has guided for the run rate of 1.5 Lakh new connections every year for next 3-4 years. The untapped market size of PNG connections, in the authorized distribution network, is approx. 30 lakh households. Currently MGL caters to only 10 lakh households and this gives us confidence of volume growth with the CAGR of 8-10% going ahead. In the CNG segment, volume has grown by 7% YoY. On account of CNG vehicles which has grown by 12% YoY to 5.9 lakh. With the government s constant focus on the clean fuel, vehicles conversion rate in Maharashtra is expected to be around 0-1 autos, cars, -200 buses per month. This gives us volume growth visibility of around 7-8% annually. Going forward we expect ROE to improve by bps to, with stable margins and consistent future cash flows, we are positive on this stock and maintain BUY with a target price of Rs

4 Income Statement in Rs Crores Cash Flow Statement in Rs Crores Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E Revenue from Operation 2,285 2,239 2,472 2,777 PBT Change (%) 0% -2% 10% 12% (inc)/dec in Working Capital Other Income Non Cash Op Exp EBITDA Int Paid (+) Change (%) 4% 26% 26% 12% Tax Paid Margin (%) 22% 28% 32% 32% others (30) (35) 1 1 Depr & Amor CF from Op. Activities EBIT (inc)/dec in FA & CWIP (215) (257) (282) (282) Int. & other fin. Cost Free Cashflow Other Income (Pur)/Sale of Inv (17) (67) - - EBT others Exp Item CF from Inv. Activities (222) (278) (282) (282) Tax inc/(dec) in NW Minority Int & P/L share of Ass inc/(dec) in Debt (3) (2) - - Reported PAT Int. Paid (0) (0) (1) (1) Adjusted PAT Div Paid (inc tax) (188) (282) (312) (351) Change (%) 3% 27% 27% 13% others Margin(%) 13% 17% CF from Fin. Activities (191) (284) (313) (352) Inc(Dec) in Cash 5 (15) Balance Sheet in Rs Crores Add: Opening Balance Y/E March FY16 FY17 FY18E FY19E Closing Balance Share Capital Reserves 1,639 1,741 1,928 2,139 Key Ratios Networth 1,728 1,840 2,027 2,237 FY16 FY17 FY18E FY19E Debt ROE 18% 21% Total Capital Employed ROCE 30% 35% 35% Net Fixed Assets (incl CWIP) 1,733 1,843 2,030 2,240 Asset Turnover Non Cur Investments 1,558 1,716 1,889 2,047 Debtor Days Other Non Cur Asst Inv Days Non Curr Assets Payable Days Inventory 1,631 1,828 2,001 2,159 Int Coverage Debtors P/E Cash Price / Book Value Bank Balance EV/EBITDA Other Curr Assets FCF per Share Curr Assets ,033 Div Yield 0% 3% 3% Creditors Financials Snap Shot Provisons Key Assumptions Other Curr Liab FY16 FY17 FY18E FY19E Curr Liabilities CNG customers('000s) Net Curr Assets CNG Volume (mmscmd) Total Assets 2,370 2,624 2,893 3,192 PNG Customers('000s) ,025 1,125 PNG Volume (mmscmd)

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