Reduce Mahangar Gas, target price Rs 925: ICICI Securities

ICICI Securities has given a reduce rating to Mahanagar Gas Ltd with a target price of Rs 925. The share price moved up by 4.33 per cent from its previous close of Rs 993.30. The last traded stock price is 1036.30.

Mahanagar Gas’ Q4FY20 EPS was up 25 per cent year on year, despite a decline in volumes, boosted by surge in margins and lower tax rate; PBT was up 10 per cent year on year while tax expense was down 19 per cent year on year. FY20 recurring EPS is up 33 per cent year on year driven by margin jump and tax rate cut.

Investment Sentiment


Mahanagar Gas has been badly hit by the lockdown. Its volumes in the first quarter FY21 till date are just 25-30 per cent of pre-lockdown levels. The brokerage is assuming 21 per cent year on year decline in its FY21E volumes and 7 per cent year on year lower EBITDA margin, which has led to 42 per cent year on year cut in its FY21E EPS (down 29 per cent year on year ). The brokerage expects volume and margin recovery in FY22 (EPS up 39 per cent year on year) but then a gradual decline in margins. Margin decline may be earlier and steeper than assumed if competition is allowed. The brokerage cut the target price to Rs 925 (7 per cent downside) and downgraded the company to reduce from hold.

Financials

For the quarter ended March 31, 2020, the company reported standalone sales of Rs 752.67 crore, down -8.11 per cent from last quarter sales of Rs 819.07 crore and up 4.17 per cent from last year's same quarter sales of Rs 722.54 crore. The company reported net profit after tax of Rs 166.59 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 32.50 per cent stake in the company as of March 31, 2020, while FIIs held 31.28 per cent, DIIs 27.75 per cent and public & others 9.19 per cent.