OMC’s have asked for an increase in trade margins- Mahanagar Gas

OMC’s have asked for an increase in trade margins- Mahanagar Gas

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.5% higher at 12,860. Among the sectoral indices, PSU Banks (+3.6%), Auto (+3.1%), and Realty (+2.1%) closed higher. FMCG (-1.1%), IT (-0.8%), and Pharma (-0.7%) closed lower. BPCL (-2.9%), HUL (-2.0%), and Dr Reddy (-1.7%) closed on a negative note. M&M (+10.4%), Tata Motors (+9.5%), and Bajaj Finserv (+6.5%) were among the top gainers.

Excerpts from an interview of Mr. Deepak Sawant, Deputy MD, Mahanagar Gas with CNBC-TV18 dated 17th November 2020:

● Margins have increased led by a drop in the purchase prices of gas. Domestic gas is around 75-80% of total sales.
● There is an improvement seen in the maintenance cost and other expenditures.
● On volumes and execution, he said the volume was 2.1 mmscmd in Q2FY21.
● In Q3 and Q4 the company will cross 3 mmscmd but on an overall FY21 basis we will be at ~2.5 mmscmd.
● Oil marketing companies have asked for a hike in dealer commission. The OMC’s have asked for double of earlier trade margins. The company has created a contingent liability every year as per the formula.
● The capex plan for FY21E is around Rs 550cr. The company is planning 1.5 times of FY21E capex in FY22 because of future opportunities.
● The volume growth in Q3 & Q4 will be 10% higher YoY.
● The company has reached 100% of the previous year’s volumes and CNG volumes still at 90% as of the date of the interview, so volume growth has come from other sectors.
● In the last 6 months, there were around 40,000 vehicles converted in the city of Mumbai to CNG which amounts to 10% of CNG volumes.

Consensus Estimate: (Source: market screener and websites)
● The closing price of Mahanagar Gas was ₹ 906 as of 18-November-2020. It traded at 15x/ 12x/ 11x the consensus Earnings per share estimate of ₹ 59.4/78.6/84.8 for FY21E/ FY22E/ FY23E respectively.
● e consensus average target price for Mahanagar Gas is ₹ 1,119/- which implies a PE multiple of 13x on FY23E EPS of 84.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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