Whalesbook
Q4 Results: Volumes Up, Profits Down
Mahanagar Gas (MAHGL) reported a mixed Q4FY26. The company saw a 6.1% year-on-year increase in total gas volumes to 4.7 million standard cubic meters per day (mmscmd), driven largely by Compressed Natural Gas (CNG) sales. However, profitability faced significant pressure due to sharp rises in raw material costs and geopolitical events, leading to reduced margins.
In Q4FY26, MAHGL's total volumes grew 6.1% year-on-year to 4.7 mmscmd, with CNG volumes up 7.2%. This top-line growth was overshadowed by a sharp drop in profitability. Adjusted EBITDA fell 21.5% year-on-year to INR2.6 billion. More concerning, EBITDA per standard cubic meter (scm) fell to INR6.2, down from INR8.3 in the prior quarter. This margin squeeze resulted from a 15.8% year-on-year surge in raw material costs and higher depreciation. Consequently, Adjusted Profit After Tax (PAT) declined 33% year-on-year to INR1.3 billion. The results triggered stock volatility as investors weighed rising input expenses against profitability concerns, even though revenue met expectations.
Sector Challenges and Peer Comparison
MAHGL currently trades at a P/E ratio of about 13.8, appearing more attractive than peers like Gujarat Gas (P/E ~23.52) and Indraprastha Gas (IGL) (P/E ~16.52). The broader Indian City Gas Distribution (CGD) sector is affected by geopolitical tensions in West Asia, which have pushed up crude oil and natural gas prices. This has led to updated, more modest volume growth forecasts for MAHGL: 8.6% for FY27 and 10.6% for FY28, down from previous projections of 10%. A key challenge for the sector is managing the price volatility of imported Liquefied Natural Gas (LNG), which forms a large part of India's supply. Margin pressure can occur if long-term contracts and pricing structures don't keep pace.
Margin Pressure Risks and Pricing Challenges
Persistent margin pressure remains a key investor concern. Rising raw material costs, amplified by global energy market volatility from West Asia conflicts, directly affect per-unit profitability. With EBITDA per scm now at INR6.2, the company faces a delicate balance between volume growth and cost control. Adjusting retail prices for CNG and Piped Natural Gas (PNG) is politically sensitive and often linked to petrol and diesel prices, making it difficult to fully pass on cost increases. Significant margin erosion could lead to earnings downgrades by analysts and potentially lower the stock's valuation multiple. Reliance on volatile spot LNG markets adds revenue risk, especially without secured, competitively priced long-term contracts. This pressure could also affect other CGD players due to interconnected pricing and cost dynamics.
Analyst View and Price Target
Despite the challenges, Prabhudas Lilladher maintained an 'Accumulate' rating. The brokerage lowered its FY27 and FY28 Adjusted EBITDA per scm forecasts to INR8.0 and INR8.6, respectively. However, it raised the valuation multiple from 10x to 12x FY28E EPS, increasing its target price to INR1,302 from INR1,114. This price target hike reflects an expectation of future improvements rather than current performance. Other analysts also see upside, with price targets ranging from INR1,380 to INR1,550. For the full fiscal year 2026, MAHGL reported revenue growth of 13.58% to INR9,059.77 crore, but net profit declined 18.67% to INR846.82 crore due to higher gas costs. The board proposed a total dividend of ₹30 per share for FY26.