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Mahanagar Gas Ltd IPO Review (Subscribe)

Review By Dilip Davda on Jun 15, 2016

Mahanagar Gas Ltd (MGL) is a joint venture between Indian gas transmission player GAIL and British Gas (BG Group) plc. Both holds 49.75% stake and the government of Maharashtra holds the balance. Since BG Group has been taken over by Royal Dutch Shell, the latter now has the ultimate ownership of the stake BGAPH (BG Asia Pacific Holdings Pte. Limited) owns in Mahanagar Gas.

MGL is presently the sole authorized distributor of compressed natural gas (CNG) and piped natural gas (PNG). The company currently operates in Mumbai + Thane + Navi Mumbai and has recently won Raigadh district distribution rights for CNG and PNG through competitive bidding. The initial few years will be investment phase for Raigad (with around Rs. 40-50 cr. capex per year) and expects to target 0.3mmscmd size by 2020. It current distribution business is valid until 2020 for Mumbai, until 2030 for Thane District and until 2040 for the Raigad district. Furthermore, this exclusivity is extendable in blocks of 10 years as per the government regulations.  CNG vehicles base currently stands at 0.43mn and PNG households connection base is 0.82mn, 2700 commercial connections and 60 industrial customers for LNG. Targeted customer base for PNG—3mn households and CNG-6.7mn vehicles.

MGL has a network of 180 CNG filling stations currently (Mumbai+Thane+Navi Mumbai) which it has grown 7-10 stations per year for last few years. But it expects to put up 15-20 CNG filling stations in FY17 (except Raigad) and going ahead also it expects to maintain the run rate. MGL has achieved 2.42mmscmd natural gas distribution size in FY16. 75% was CNG volume and 25% was PNG and RLNG volume and value wise 65% CNG and 35% PNG and RLNG.

MGL’s top line increased to Rs. 2135.63 cr. in FY15 from Rs. 1074 cr. in 2011 and PAT to Rs. 301 cr. for FY15 from Rs. 225 cr. in FY11. For FY it has posted a net profit of Rs. 308.69 cr. on a turnover of Rs. 2121.63 cr. Company’s paid up equity has been Rs. 89.34 cr for all these years. It is only in June 16 got enhanced to Rs. 98.77 cr. following conversion of CCDs. For last three fiscals it has been posted an average EPS of Rs. 34.05 (basic) and Rs. 30.89 (diluted). Thus the asking price is at a P/E of 12.3 on the equity as on 31.03.16 and if we consider current equity with FY 16 earnings, then the asking price is at a P/E of 13.4 plus which is justified compared to composite industry P/E of 30 plus. Peers have the lowest P/E of 17 and the highest P/E of 44 as stated in RHP. The major bottleneck for growth of the sector as well as industry is regulatory clearances. For putting up one CNG station, at least 2 5cleararnces are required from different authorities.  This is the major reason for slow growth despite huge demand. The entire CNG vehicles in Mumbai and surroundings are voluntary today unlike in Delhi where CNG buses and taxis are mandatory now. Any such development could push growth of the company on fast track.

To explore the value for the stakeholders and listing benefits, the company is coming out with an Initial public offer of up to 24,694,500 equity shares of face value of Rs. 10 each through an offer for sale via book building route within a price band of Rs. 380-421. Issue opens for subscription on 21.06.16 and will close on 23.06.16. Minimum application is to be made for 35 shares and in multiples thereon, thereafter.  Both the promoters i.e. GAIL and BG Asia are selling equal quantity of 12347250 shares to dilute around 25% of the post issue paid up equity capital. With this IPO the company is trying to mobilize Rs. 938.39 cr. / 1,039.64 cr. based on the lower and upper price band. BRLM to the offer are Citigroup Global Markets India Pvt Ltd and Kotak Mahindra Capital Company Ltd. Link Intime India Pvt Ltd is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

On BRLM’s front, the two Book Running Lead Managers associated with this Offer have handled 13 public issues in the past three years, of which five issues closed below the issue price on listing date.

Conclusion: The Company is in virtual monopolistic business with steady growth and bright prospects ahead. It offers IPO at a justified pricing and thus is worth considering for medium to long term rewards.


Conclusion / Investment Strategy

The Company is in virtual monopolistic business with steady growth and bright prospects ahead. It offers IPO at a justified pricing and thus is worth considering for medium to long term rewards.

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on Jun 15, 2016

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Mahanagar Gas IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Mahanagar Gas IPO worth investing. The Mahanagar Gas IPO Note sets the IPO expectations in systematic way which tells you if Mahanagar Gas IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Mahanagar Gas IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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