Mahanagar Gas Q3 Results Preview: Ebitda May Fall On Lower APM Gas Allocation

The company's earnings are expected to fall sequentially on muted volume growth, early price cuts and lower allocation of APM gas.

<div class="paragraphs"><p>(Photo: Mahanagar Gas/Facebook)</p></div>
(Photo: Mahanagar Gas/Facebook)

Mahanagar Gas Ltd. may witness a decline in its third quarter earnings on a sequential basis. The fall in earnings will be mainly due to October price cuts and lower allocation of Administered Price Mechanism gas.

Net profit of the city gas distribution company may fall 16.87% quarter-on-quarter to Rs 281.44 crore in the October–December period, with Ebitda margins declining 110 basis points, according to Bloomberg consensus estimates.

Mahanagar Gas Q3 FY24 Preview: Bloomberg Estimates (QoQ)

  • Revenue may fall 11.55% to Rs 1,529.27 crore.

  • Ebitda may fall 15.7% to Rs 406.20 crore.

  • Margin may fall to 26.6% vs 27.7%.

  • Net profit may rise 16.87% to Rs 281.44 crore.

Price Cuts

On Oct. 1, 2023, Mahanagar Gas reduced its selling price of compressed natural gas and petroleum natural gas. CNG prices were cut by Rs 3 per kilogram to Rs 76/kg, while PNG prices were cut by Rs 2 per standard cubic meter to Rs 37/SCM.

The reduction in prices leads to lower revenues per unit of gas sold. Kotak Securities Ltd. noted that the rising APM shortfall and higher price cuts versus HPHT price decline, would moderate unit margins for Mahanagar Gas.

Lower APM Gas Allocation

Gas produced from nomination blocks from Oil and Natural Gas Corp. and Oil India Ltd. are subject to an APM. The APM price acts as a floor and ceiling price at which exploration companies can sell to city gas distribution companies like Mahanagar Gas.

The allocation of cheaper APM gas fell sharply to 80% during Q3 FY24, compared to 88-90% in the previous quarter, Jefferies noted. This further offsets the 18% fall in high pressure and high temperature gas price in October 2023, it said. Ebitda margins could normalise from elevated levels, on the Rs 3/kg price cuts in CNG, as the company is prioritising volume growth given a large margin cushion, according to the brokerage.

The lower allocation, therefore, would lead to the company buying gas from the open market, which would be at a higher cost compared to the APM gas.

CLSA expects 8% fall in unit Ebitda margin for Mahanagar Gas, while JM Financial expects a 9.5% decline due to normalisation.

Mahanagar Gas' net profit could fall by 15% QoQ due to lower margins as a result of price cuts, lower APM allocation and higher opex, according to CLSA.

Volume Growth

JM Financials Ltd. expects Mahanagar's volume growth to be muted at 3.6mmscmd, with CNG sales volume growing 1.6% QoQ, and PNG sales volume growing 2% QoQ. It estimates 11% decline in net profit.

Prabhudas Lilladher Pvt. also expects volume growth to be muted at 2.5 mmscmd, leading to a marginal decline in operating profit. It sees no change in realisation.