The Mega
IPO of Mahanagar Gas Ltd will open for subscription on 21st June, 2016. Here are the Expert Research Reviews and Recommendations.
Edelweiss has the following view,
Mahanagar Gas (MGL) is India’s third-largest city gas company with quasi-monopoly in Mumbai and adjoining areas. According to our analysis of Asian peers, MGL (along with IGL) offers a purer play on the steady, high barriers to entry compressed natural gas (CNG) and residential PNG business. Mumbai has one of most dynamic and yet modest penetration levels in the country with ~26%/29% penetration of CNG/residential PNG. We expect enhanced CNG competitiveness and entry in nascent market of Raigad to drive the company’s volumes 7% p.a, lower than IGL’s at 8% p.a. IGL shall enjoy a mildly higher RoE, as well. We, therefore, believe IGL deserves a premium valuation over MGL. At the upper band of the proposed IPO price of INR421, MGL will be at 18% FY18E PER (10.7x) discount to IGL, which we believe is fair.
Phillip Capital Research analyst Sabri Hazarika said,
We have a positive view on the CGD sector and recommend investors SUBSCRIBE this issue. Investment case: (1) CGD is a stable monopolistic utility business with strong entry barriers and first‐mover advantage , (2) due to its clean and economic nature, CNG and PNG are widely promoted by the Government/Courts/policy makers in the form of necessary availability of cheap domestic gas, low taxation, compulsory conversions and expansion push, (3) with oil prices recovering towards US$ 50/bbl, economics of gas‐based fuels have improved considerably, which would lead to more substitution and higher volumes, (4) MGL is expanding into contiguous areas like Raigad which would provide significant longer‐term potential, (5) valuation at 11‐12x FY18 PE is attractive on near 20% RoE/RoCE, debt free balance sheet, healthy cash flows and peer group trading at 15x+.
Daljeet Kohli of IndiaNivesh told,
MGL’s business model of marketing through OMCs rather than operating its own CNG pumps unlike its peer IGL (which owns 40% of its CNG retail outlets) and PNGRB’s order to provide marketing rights of CNG to more players poses risk to MGL’s usiness. As per our calculation, at upper price band of Rs. 421, the stock is priced at 12.2x FY18e EPS of 34.4, which is lower than its peer IGL of 15x as per Bloomberg expected EPS, we advise investors to subscribe the issue.
Elara Securities Analyst Swarnendu Bhushan has the following review,
Due to the large scope of penetration, we expect a volume growth of 5% in FY17-18E. We estimate an EPS of INR 34.6 in FY18. At upper limit of INR 421, the stock would be valued at 12.2x FY18 EPS. IGL is currently trading at 15x its FY18 EPS of INR 41.6. At 15x FY18 EPS of INR 34.6, we value MGL at INR 518. Subscribe.
Spark Capital Research analyst VISHNU KUMAR A S and PRANAY SHAH have rated the IPO as under,
The issue is priced attractively at a band of Rs.380-420/sh and at the upper band valued at 13x on trailing EPS & 11.5x on fwd estimates (IGL @16x FY18E PE). We see a fair value of Rs. 460 (@ 13x FY18E EPS) and recommend to “Subscribe” to the issue.
Prabhudas Liladhar Analyst Avishek Datta has the following Rating,
Mahanagar Gas (MGL) is one of the largest City Gas Distributors (CGD) players in the country which caters to high growth market of Mumbai and neighbouring areas. Company supplies CNG and PNG to 1.3m customers. Volume growth of 2% in FY16 has been impacted by lower prices of competing fuels. However, recent cut in domestic gas prices along with increase in liquid fuel prices, in line with rising crude prices, will support volume growth, going forward. Also, supported by lower gas prices, management expects spreads to improve from FY16 levels of Rs5.8/scm. Issue price of Rs421 implies FY16 P/E multiple of 12x. MGL offers a secular growth story at reasonable valuation. We recommend “Subscribe” with a long term view.
Arihant Capital has the following Rating on Mahanagar Gas Public Issue
The issue has been offered in a price band of Rs380-421 per equity share. At the upper price band the stock is available at P/E of 12.2 (x) based on FY 16 financials. The issue looks under undervalued against its peer group companies IGL and GGL which are trading at 18.4 (x) and 45.7 (x) respectively. Industry composite PE for the company stands at 31 (x). However, the RoE for the stock has dropped down from about 31% in FY 12 to about 21% in FY 16. We have “4 star” rating for the issue.
Antique Stock Broking analyst Nitin Tiwari said,
The offered price band for the issue is between INR 380 -421/sh. As per our estimates the offered price band implies a P/E of 10.7x to 11.7x FY18e, at a discount to its closest peer IGL, which is trading at 14-16x FY18e. Our earnings estimate models for NG sales CAGR of 3.8% (FY16-18e) and EBITDA of INR 5.8/scm. Although IGL has had a superior growth, despite similar vintage, we believe that a) implied discount factors in the same and b) the latent growth potential for MGL, makes the offered price band attractive for investors.
Centrum Research Equity Analysts Payal Pandya and Siddhartha Khemka are of the following view,
At the higher price band of ₹421, the issue is valued at 7.0x EV/EBITDA and 13.5x P/E on FY16 basis. Indraprastha Gas Ltd with similar financials and business model is trading at 19x P/E and 10x EV/EBITDA FY16 basis. In comon, MGL’s offer price is at a discount and appears attractive. Hence, investors can Subscribe to the issue for listing gains. Post listing price performance would be dependant on MGL’s growth in profits. Also, MGL’s future volume growth could come from its ability to expand its operations to newer geographies.
Sharekhan has the following views,
At the upper band of the offer price of Rs421, MGL is valued at 14x FY2016 earnings and 12x FY2016 earnings (adjusted for cash and liquid investments). On EV/EBITDA basis, it is valued at 6.5x. The offer price is substantially lower than the current valuation multiples of its listed peers (Indraprastha Gas & Gujarat Gas). IGL is trading at 19x its FY2016 earnings and 10x EV/EBITDA, while Gujarat Gas is trading at 12x EV/EBITDA based on FY2016 earnings.
Reliance Securities Analyst Vikas Jain has the following view,
MGL’s sales volume and revenue grew at the CAGR of 5.7% & 12.3%, respectively over FY12-FY16. At upper price band, MGL will trade at 12.6x FY16 earnings, while its peer Indraprastha Gas currently trades at 18x FY16 standalone earnings. However, we believe that the valuation gap will shrink, going forward given growth prospects of MGL. Considering MGL’s vast network, potential growth opportunities in newer areas, robust natural gas consumption outlook suggesting steady growth, strong management background, high entry barriers and attractive issue price (upper price band) vis-à-vis peers, we recommend SUBSCRIBE to the issue.
Gupta Equities has the following review,
Mahanagar Gas Ltd. stands to gain from operating leverage and also rise in the CNG and PNG business. At a P/E of 13.4x we believe that Mahanagar a discount to its domestic. We assign a Subscribe rating to the IPO.
Ajcon Analyst Akash Jain has the following recommendation,
cheaply valued against peers like Indraprastha Gas (P/E - 17x) and Gujarat Gas (P/E - 45x) ,we recommend investors to “SUBSCRIBE the issue for listing gains”.
Destimoney Research said,
At Rs.380 - Rs.421 per share, MGL offers good entry point for long term investors seeking exposure to stable business growing at moderate pace . We advise to SUBSCRIBE for the IPO at CUT OFF
ICICI Direct Analysts Mayur Matani and Harshal Mehta have the following recommendation
MGL presents an opportunity to have an exposure to the robust business model and growing CGD space. We believe the company’s strong CGD network offers good demand potential due to lower CNG, residential PNG penetration and increased usage of gas for industrial volumes. The strong financial position provides MGL with financial flexibility to expand its network in its existing markets and enter new markets. The proposed issue price band of | 380-421 implies a P/E of 11-12.2x (12.1-13.5x on a diluted basis) on FY16 earnings, which is at a discount to its benchmark peers. We recommend that investors SUBSCRIBE to the IPO.
Anand Rathi has the following View,
The company has reported a CAGR of 11.1% in its revenues which stood at ₹2,080 crore in FY16. The company’s IPO is priced at 12x FY16 earnings at upper price band while its nearest peer IGL is trading at ~15x FY18E EPS. We are positive on the CGD sector & its growth prospects in future and considering MGL’s current valuation we recommend Subscribe for the IPO.
