IDFC Securities has upgraded its rating on Mahanagar Gas Ltd. citing 'stellar earnings' over past 15 months backed by higher margin and volume estimates.
The brokerage expects softer domestic gas prices, decreased competitiveness with alternate fuels and growing penetration of domestic segment in Mumbai to drive volumes higher.
“The company's expansion into Raigarh is expected to accelerate volumes further.” IDFC estimates the city gas distributor's volumes expanding to 4.7 percent over financial year 2018-19.
It said improved operating environment, increasing alternative fuels' prices and rupee appreciation are likely to create a stronger margin profile of the natural gas distributor.
“MGL has historically also been the highest among peers when it comes to margin profile, with the highest proportion of compressed natural gas (CNG)/domestic piped natural gas (PNG) among peers and this lead is likely to expand over FY18 and FY19,” said IDFC Securities.
Key Estimates
- Earnings before interest, tax, depreciation and amortisation is likely to widen 16 percent by compounded annual growth rate over FY17-FY19.
- Profit after tax is expected to rise 18 percent CAGR in FY17-FY19.
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