MAHANAGAR GAS Ltd.

Mahanagar Gas Limited, (MGL) one of India's leading Natural Gas

Distribution Companies was incorporated on May 8, 1995. GAIL (India)
Limited (Maharatna Company of Govt. of India) is the promoter of MGL.

Mahanagar Gas (MGL) is one of the leading Natural Gas Distribution

Companies in India. MGL is the sole authorized distributor of
compressed natural gas (CNG) and piped natural gas (PNG) in the
Mumbai, Thane, and Raigad districts of Maharashtra. Promoted by GAIL
(India) Limited, the largest state-owned natural gas processing and
distribution company in India, and BG Asia Pacific Holdings Pte. Ltd
(BGAPH), MGL distributes CNG for motor vehicles and PNG for
domestic, commercial as well as industrial use.

The business area of the company:

MGL is in the business of City Gas Distribution (CGD), supplying natural

gas in the city of Mumbai including its adjoining areas and the Raigad
district, in the State of Maharashtra, India.

Services offered by the company:

● Domestic PNG
● Commercial PNG
● CNG
● Industrial PNG
● Gas Geysers
Awards
● 2016: Greentech Safety Awards 2016 in Gold Category
● 2016: Best Education Improvement Award by World CSR Day
2016
● 2016: Rashtra Vibhushan Award 2016-17
● 2017: The Middle East CSR Leadership Awards 2017
● 2017: Nava Bharat CSR Leadership Summit Awards 2017
● 2017: National Award for Excellence in CSR & Sustainability 2017
● 2017: Innov Awards 2017 in Gold Category
● 2017: Golden Tigers Award 2017
● 2018: Yes Bank - Business World Best CFO Award 2018
● 2018: Social Change Award 2018 by Govt. of India
● 2018: Financial Express CFO Awards 2018
● 2019: MGL was conferred with the Stars of Industry Award, 2019
for outstanding achievement in CSR.

Major events and milestones:

● 2011-2012: Commissioned 150th CNG dispensing station.
● 2012-2013: Completed laying more than 350 km of PE pipeline
and 350 km of steel pipelines.
● 2013-2014: Achieved a customer base of 1.0 million customers.
● 2017: MGL crosses 200th CNG Station mark in MMR
● 2017-18: Mahanagar Gas sets up First CNG Station in Raigad.
● 2018-19: Expanded its network in Raigad by operating 10 CNG
stations.
● 2019-20: Crossed a milestone of 250 CNG stations.
Market Natural Gas and CGD: Attractive Industry
Industry Overview:
● India was the third-largest energy consumer in the world after
China and the US in 2019(1)
● India’s primary energy consumption has increased by ~ 58%
between 2009 and 2019, reaching ~813 M Toe
● India’s per capita energy consumption is one-third of the global
average, indicating potentially higher energy demand in the long
term (1)
● Environmentally clean fuels, such as natural gas, are expected to
play a dominant role in India's economic growth in the coming
years

CGD Sector to Grow at a Faster Pace as Natural Gas becomes a

Preferred Fuel (2):

…With Increased Government Focus:

● Environmental Initiatives
● PNG and CNG Corridor
● CGD Expansion in New Cities
MGL Shareholders:
GAIL (India) Ltd.
● Government of Maharashtra
● India’s largest natural gas company with a market share of over
80%.
● Possesses a transmission network of ~11,000 km of natural gas
pipeline transmission network with a total capacity of 206
MMSCMD.
● Governor for the State of Maharashtra in Western India.
● Current shareholding in MGL: 10%
● Dilution of Shares: Shareholders have not been meaningfully
diluted in the past year.
Management:

NAME POSITION TENURE COMPENSAT OWNERSHIP

ION
Sanjib Datta MD & Director 2.92yrs ₹9.10m No data
Sunil Ranade Chief 6.83yrs ₹8.60m 0.00045%
Financial ₹ 493.2k
Officer
Srinivasan Senior Vice No data ₹8.22m No data
Murali President of
Operations &
Maintenance
Rajesh Wagle Senior Vice 2.25yrs ₹8.82m No data
President of
Marketing
Chakrapani Vice President 2.25yrs ₹6.39m No data
Atmakur of Human
Resources &
Corporate
Social
Responsibility
T. Sharnagat Vice President 1.83yrs ₹6.76m No data
of Contracts &
Procurement
and Chief Risk
Officer
Rajesh Patel Vice President No data ₹6.15m No data
of Finance

Gurvinder Vice President No data ₹5.87m No data

Anand of Projects
Atul Prabhu GM of IA & .083 yrs NO data No data
Vigilance

● Average management tenure =2.3 years

● CEO Compensation Analysis:
1) Total Compensation Salary Company Earnings
Compensation vs Market: Sanjib's total compensation
 ($USD121.73K) is below average for companies of similar
size in the Indian market ($USD457.88K).
2) Compensation vs Earnings: Sanjib's compensation has been
consistent with company performance over the past year

● Mr. Sanjib Datta Managing Director (Nominee of GAIL) •Over 33

years of experience •Heading business development function in
GAIL Before joining •Experience includes Merger & Acquisition
initiative & Steering of Globalization efforts.
● CEO
● Mr. Deepak Sawant Deputy Managing Director (Nominee of GAIL)
•Over 29 years of experience •Experience also includes an
overseas assignment in Myanmar for exploration and production of
Natural Gas •Prior Experience with GAIL (I) Limited.
● Mr. Sunil M Ranade, Chief Financial Officer •Over 24 years of
experience at MGL •Prior experience at Wander Ltd., Herdillia
Polymers, Goodlass Nerolac, and Ashok Organic Industries.
● Mr. Rajesh P Wagle, Senior Vice President — Marketing •Over 18
years of experience at MGL •Prior experience at GAIL, Quantum
Information Systems Limited, and Enron India Private Limited.
● Mr. Srinivasan Murali, Senior Vice President - Operations and
Maintenance •Over 18 years of experience at MGL •Prior
experience at Bilt Chemicals, Cabot India, Cement Corporation of
India, and Indian Aluminium Company
● Mr. T L Sharnagat, Vice President - Contracts & Procurement and
Chief Risk Officer • Over 29 years of experience in Contracts &
Procurement • Prior experience at L&T, GAIL(India) Limited.
● Experienced Management: MGL management team is considered
experienced (2.3 years average tenure).
● Experienced Board: MGL board of directors is not considered
experienced ( 1.6 years average tenure), which suggests a new
board.
Financial and Operational Performance:
PasPast Performance:

● High ROE: MGL Return on Equity (19.8%) is considered low.

● Comparison of ROE between Company19.8% and Industry 23.3%.
● Comparison of ROA between Company 12.2% and Industry 12.8%
● Comparison of ROCE Last Year 22.1% as compared to 3 Years
Ago 31.3%
● According to ratio analysis company is overvalued.

● The above graph of days of payable, days of receivable, and days

of inventory represent good operation management of Mahanagar
gas ltd
● A consistent decrease in days receivable represent company gets
its money fast from creditors.
● A consistent decrease in days of inventory represents excellent
inventory management or a company not keeping its ready
products in as an inventory.

● Quality Earnings: 539957 has high-quality earnings.

● Growing Profit Margin: Mahanagar gas Ltd’s current net profit
margins (27%) are higher than last year (25.3%).
● Earnings Trend: Mahanagar gas ltd’s earnings have grown by
15.8% per year over the past 5 years.
● Accelerating Growth: Mahanagar gas ltd has had negative
earnings growth over the past year, so it can't be compared to its
5-year average.
● Earnings vs Industry: Mahanagar gas ltd had negative earnings
growth (-24.6%) over the past year, making it difficult to compare
to the Gas Utilities industry average (5.6%).
Financial Health:

● Short Term Liabilities: MGL’scash-generating short-term assets

(₹17.4B) exceed its short-term liabilities (₹12.3B).
● Long Term Liabilities: MGL short term assets (₹17.4B) exceed its
long term liabilities (₹2.3B)

● Debt Level: MGL is debt-free.

● Reducing Debt: MGL has no debt compared to 5 years ago when
its debt to equity ratio was 0.5%.
● Debt Coverage: MGL has no debt, therefore it does not need to be
covered by operating cash flow.
● Interest Coverage: MGL has no debt, therefore coverage of
interest payments is not a concern.
● Notable Dividend: MGL dividend (1.76%) is higher than the bottom
25% of dividend payers in the Indian market (0.42%).
● High Dividend: MGL dividend (1.76%) is low compared to the top
25% of dividend payers in the Indian market (1.77%).
● Stable Dividend: Whilst dividend payments have been stable, MGL
has been paying a dividend for less than 10 years.
● Growing Dividend: MGL dividend payments have increased, but
the company has only paid a dividend for 5 years.
● Dividend Coverage: With its reasonably low payout ratio (33.6%),
MGL dividend payments are well covered by earnings.
● Future Dividend Coverage: Insufficient data to determine if a
dividend will be paid in 3 years and that it will be covered by
earnings.
 SWAT ANALYSIS:

STRENGTH WEAKNESS
● High Piotroski Score - ● MFs decreased their
Companies with strong shareholding last quarter
financials
● Degrowth in Revenue and Profit
● Strong QoQ EPS Growth in recent
results ● Declining Net Cash Flow:
Companies not able to
● Growth in Net Profit with generate net cash
increasing Profit Margin (QoQ)

● Growth in Quarterly Net Profit with

increasing Profit Margin (YoY)

● Company with No Debt

● Increasing Revenue every quarter

for the past 2 quarters

● Increasing profits every quarter

for the past 2 quarters

● Strong cash generating ability

from core business - Improving
Cash Flow from operation for last 2
years

● Annual Net Profits improving

for last 2 years
 ● Book Value per share Improving
for last 2 years

● Company with Zero Promoter

Pledge

● FII / FPI or Institutions increasing

their shareholding

OPPORTUNITIES THREATS
● Due covid 19 extension of
● Rising Delivery Percentage
lockdown
Compared to Previous Day and
Effect consumption of CNG/PNG.
Month, Strong Volumes

● Brokers upgraded
recommendation or target price in
the past three months ● Future sales and profit can
decrease because of zero public
● Positive Breakout Second transportation.
Resistance ( LTP > R2)

● High Volume, High Gain.

● This is a good time to penetrate
other parts of the market to
increase sales and profit growth.
VALUATION :

● Discount Rate (Cost of Equity) 13.7%

● Perpetual Growth Rate 7.0%
● Risk-Free Rate 7.0%
● Equity Risk Premium 8.5%
● Gas Utilities Unlevered Beta 0.45
● Re-levered Beta = 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax
rate) (Debt/Market Equity))]
= 0.33 + [(0.66 * 0.454) * (1 + (1 - 35.0%) (0.57%))] = 0.635
● Levered Beta 0.8
● Discount Rate/ Cost of Equity
= Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk
Premium)
= 6.96% + (0.800 * 8.46%)=13.73%

● Terminal Value
FCF2030 × (1 + g) ÷ (Discount Rate – g)
= ₹7,342.296 x (1 + 6.96%) ÷ (13.73% - 6.96% )= ₹116,036.04

● Present Value of Terminal Value

= Terminal Value ÷ (1 + r)10
₹116,036 ÷ (1 + 13.73%)10
₹32,056.71

● Total Equity Value

= Present value of next 10 years cash flows + Terminal Value
= ₹26,792 + ₹32,057=₹58,848.71
● Equity Value per Share
Total value / Shares Outstanding
= ₹58,849 / 99 =₹595.77
According to DCF Mahanagar gas is over valued.
 COMPETITIVE ANALYSIS:

COMPANY MAR PE P/BV D/E ROC ROE SAL PAT

KET E ES
CAP

PETRONET LTD 1519 9.66 2.48 .74 34.33 55.89 1224 2284.76
1.39 3

MAHANAGAR GAS 1083 18.90 3.49 0 37 29.66 2972 793.53

5

CONFEDENCE 6.41 0 .74 .08 0.04 .02 1.46 00

FUTUREISTIC LTD

CONCLUSION:
● Mahanagar gas ltd is overvalued so according to my
DCF and RATIO analysis this is not the right time to
buy.
● If anyone wants to buy the company from the oil and
gas sector Petronet ltd is a fundamentally strong
company.
● Mahanagar gas ltd is a small-cap company it runs most
of its business runs on Short term liabilities and right
now the short-term loan interest rate is lower as
compared to the last ten years so this is the right time
for Mahanagar gas to penetrate the market other
segments.
● Mahanagar gas ltd should increase focus on LPG
production as compared to CNG(Automobile fuel )
because lockdown will extent for more than 3-4 months
more so production of LPG at a fair price as compared
to its competitors.
● Mahanagar gas ltd has the advantage of zero debt
compared to its competitor so it can expand its
business with new strategies.
● From an investment point of view, Mahanagar gas ltd is
a good stock for long-term investment as compared to
short-termLTD’s investment.