Mahanagar Gas Ltd IPO to open on 21/6/2016(Tuesday) – 23/6/2016 (Thursday)
Price band – Rs. 380 – 421
Issue Size : Approx size 1,040 crore which is an offer for sale for Rs 520 crore by GAIL and British Gas respectively for their 12.5% stake each in the componay.
Managers to the Issue : Kotak Mahindra Capital Company and Citigroup Global Markets.
Promoters: GAIL & British Gas Asia hold 45% each of the Pre-IPO equity capital ( Both together 90%) . Following the IPO, the shareholding of Gail and BG Asia group will come down to 32.5% each, i.e. 65% in total. The government of Maharashtra which initially had just .49% stake now owns 10% stake in the company most of which is on recently allotted CCDs.
About the Company
Mahanagar Gas is country’s leading natural gas distribution company and is a joint venture between Gail and British Gas group.
Financials :
Annual Results ( Figures in Rs. Crore)
| 2016* | 2015 | 2014 | 2013 | |
| Equity | 89.3 | 89.3 | 89.3 | 89.3 |
| Networth | 1528 | 1407 | 1297 | 1183 |
| Operating Income | 2079 | 2095 | 1885 | 1514 |
| Total Income* (estimated) | 2121 | 2135 | 1919 | 1514 |
| Profit Before Tax | 469 | 449 | 442 | 442 |
| Net Profit | 309 | 301 | 297 | 299 |
| Net Profit Margin | 14.5 | 14.1 | 15.5 | 19.7 |
| Earnings per Share (Rs.) | 34.6 | 33.7 | 33.3 | 33.4 |
| * estimated |
While company’s revenues have grown at a compound annual growth rate (CAGR) of 12.4 % . Profit after tax (PAT) has been more less stagnant and rose 0.08 per cent from FY16 to FY12.
| Peer Companies | Sales fy16 | Equity | Net Profit Margin | Price | EPS | TTM P/E |
| GAIL India | 11627 | 1268 | 6.56 | 372.6 | 18.1 | 20.6 |
| Gujarat Gas Co | 6050 | 137.68 | 2.5 | 745.6 | 24.3 | 30.6 |
| Indraprastha Gas (IGL) | 3673 | 140 | 12.15 | 611.6 | 29.7 | 20.6 |
| Guj. State Petronet | 987 | 563 | 43.14 | 133.6 | 7.9 | 16.9 |
| Mahanagar Gas (Issue price) | 2079 | 89.3 | 14.5 | 430 | 34.6 | 12.43 |
| Mahanagar Gas(Random price Rs. 550) | -do- | -do- | -do- | 550 | 34.6 | 15.9 |
Assessment
- Mahanagar gas stands next to IGL as a CNG Retailer and like IGL derives major revenue from CNG.
- CNG Business accounts for 65% of revenue, PNG accounts for balance 35%
- Relatively lower dependence on industrial piped natural gas (which is cyclic & has low margin) in region of 15% , 18% for IGL & MGL respectively is positive.
- CNG operated vehicles has shown a steady a compounded annual growth rate (CAGR) of approx 12-13% per annum in the region
- Mahanagar gas is planning a considerable higher rate of installations of new CNG station & PNG gas network in next five years.
- There are significant entry barriers for competitors to enter into MGL’s area of operation,
- This Infrastructure Exclusivity is valid until 2020 for Mumbai, until 2030 for the Adjoining Areas and until 2040 for the Raigad district. The period of exclusivity is extendable in blocks of 10 years as per the PNGRB Regulations.
- Debt-free balance sheets, a healthy cash.
- The Raigad district provides significant additional opportunities for expansion of company’s CNG and PNG networks
- Double dugt revenue growth in the past five years have not been marched by increase in Profit after Tax which has remained more or less stagnant.
- Looking at IGL growth in CNG, and increasing environment concerns, Mahanagar gas can benefit from the same
- There is risk factor in form a pending judgment of Delhi high court regarding exclusivity of Gas distribution. To mitigate this both IGL & MGL are bidding aggressively for compressed gas distribution network which is likely to start in 60 cities.
- Unlike IGL which has its own stations, large part of CNG sold by MGL is on the network of oil marketing companies on some charge sharing arrangement & carries some degree of risk
- IGLs growth is led by regulatory requirement in Delhi. At preset tere is no regulation to use CNG for automobiles in Mumbai & demand is due to economy of CNG.
- Even as profit growth has been slow, Overall issue is fairly priced & looks attractive.