Mumbai-based Mahanagar Gas Ltd’s (MGL) investors remained unimpressed with the city gas distribution firm’s strong profitability for the June quarter. The stock declined over 4% on the National Stock Exchange on Friday, perhaps reacting to the muted volume performance.

Overall volumes grew 3.3% year-on-year. This growth was lower than expectation. For instance, volumes missed Jefferies India Pvt. Ltd’s estimates by 3%. MGL’s slower volume growth was led by a muted 2% year-on-year growth in compressed natural gas (CNG) volumes, which accounted for nearly 73% of total volumes. Sequentially, CNG volumes were marginally lower. “Indeed, volume growth is constrained by infrastructure bottlenecks in Mumbai," wrote Jefferies analysts in a report on 9 August.

What offers some comfort is that the piped natural gas (PNG) segment performed relatively better. Within this, domestic PNG volumes grew at a reasonable pace of 9% whereas industrial/ commercial PNG segment increased at a relatively slower rate of 4.7%.

Nonetheless, MGL’s Ebitda performance for the June quarter is nothing to sneeze at. Analysts from SBICAP Securities Ltd said, “Ebitda margin jumped sharply to Rs10.3 per standard cubic meter (scm) (or 10.1 per scm before Indian Accounting Standard (Ind-AS) 116 impact)." This was against SBICAP’s estimate of 8.5 per scm (and Rs7.9 per scm reported in the March quarter). Ebitda is short for earnings before interest, tax, depreciation and amortisation and is a key measure of profitability.

June quarter Ebitda performance was helped by a relatively slower rate of increase in input cost and better realisations. Overall, MGL’s net profit has increased nearly 33% (or a third) compared to last year’s June quarter to 170 crore, ahead of consensus expectations.

After taking into account Friday’s fall, MGL shares have declined 25% so far this financial year. This has been due to concern that the BG group will sell its stake, analysts said.

Meanwhile, volume performance would remain a key moniterable for the stock. “Our demand side analysis suggests underlying demand for CNG is much higher creating scope for positive surprise (like in financial year 2019)," point outs Jefferies. Currently, MGL shares trade at 12.5 times estimated earnings for the current financial year.

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