Graphic: Subrata Jana/Mint
Graphic: Subrata Jana/Mint

Higher volumes, margins boost Mahanagar Gas

Tailwinds from cheaper domestic gas are expected to continue to drive profits of Mahanagar Gas

Gas distributors have had a very good quarter.

Indraprastha Gas Ltd’s June quarter financial results got a boost from higher margins and better sales volume. The story is similar for Mahanagar Gas Ltd (MGL) as well.

For the June quarter, the city gas distribution company’s total sales volume increased 7.5% over the same period last year to 2.50 million standard cubic metre per day (mmscmd).

Within that, compressed natural gas (CNG) sales increased 8.3% for the quarter. According to Antique Stock Broking Ltd, strong growth in CNG sales was observed on account of above average rate of conversion at about 7,000 vehicles per month during the quarter, as a higher number of three-wheelers joined the existing fleet.

Total piped natural gas (PNG) volume though increased at a relatively slower rate of 5.5%.

Nevertheless, despite better overall sales volume growth, MGL’s revenues declined about 6% to 483 crore (adjusting for excise duty).

That was mainly owing to a drop in the selling prices of both CNG and PNG, in view of lower input gas cost.

Also Read: Volume, margin boost for Indraprastha Gas

But lower gas costs helped operating profit performance. Operating profit margin increased 690 basis points to 31.5%. That was helped by 21% decline in MGL’s input costs. Antique Stock Broking pointed out that Ebitda (earnings before interest, tax, depreciation and amortization) per unit stood at a robust 6.7 per standard cubic metres (scm). Ebitda per unit for the March quarter was 5.97 per scm and for the June 2015 quarter it was about 5.98 per scm.

One basis point is one-hundredth of a percentage point.

MGL’s operating profit increased 20% to 152 crore and net profit increased 19% to 92.7 crore. Moreover, the outlook too looks good.

Tailwinds from cheaper domestic gas are expected to continue to drive profits in the coming days. Prabhudas Lilladher Pvt. Ltd expects 16.2% compounded annual growth rate earnings growth over FY16-18.

Given the prospects, it’s not too surprising that the MGL stock has appreciated as much as 50% so far from its issue price. Currently, one MGL share trades at about 18 times estimated earnings for this financial year.

Valuations suggest a good portion of the optimism is in the price.