Operational revenue during the quarter under review grew 23 per cent at Rs 793 crore against Rs 644 crore in the corresponding quarter of previous fiscal.
“EBITDA margin contracted to Rs 8.1 per standard cubic meter (scm) from Rs 9/scm in previous quarter due to jump in other expenses. CNG sales volume was up 6.9 per cent YoY (down 1.1 per cent QoQ) but lower than our expectation of 9.2 per cent YoY growth; hence, overall sales volume was up 7.5 per cent YoY (down 0.7 per cent QoQ), lower than our expectation of growth of 8.9 per cent YoY,” analysts at SBICAP Securities said in the result update.
The brokerage firm believes that volume growth potential will be capped as the key Mumbai market is nearing saturation (effective private vehicle penetration is at around 26 per cent) and CNG infrastructure is witnessing slow growth.
Further, high FCF (free cash flow) generation (around Rs 700 crore over FY20-FY21) will compel MGL to diversify its portfolio and add five or six Tier-2 and Tier-3 cities. However, these cities are smaller in size (around 10-15 per cent of Mumbai’s potential) and prefer PNG over CNG, which translates into weak pricing power and muted volume growth, it added.
Analysts maintain ‘HOLD’ rating on the stock as they still shy away from taking a more constructive view at this point due to the structural challenges discussed above. Further, the likely 10 per cent stake sale by BG group (after its lock-in expires by end-Jun’19) is likely to act as a near-term overhang on the stock, it added.