Q4 results were average compared to expectations. HDFC was predicting 113 crore PAT. K R Choksey was estimating 131 crore. Last 3 quarters had 125 crore PAT.
As per me, MGMT has clarified focus will be on volume growth which perhaps reflects in topline growth which is 10% better YOY.
The stock is under a lot of pressure. I’m still clueless as to how a company that’s got this kind of fundamentals is trading at 16 trailing PE.
It’s earning 470 crores on capital of 2100 crores (~23% RoE which is above the cost of capital of usually 15%).
It’s debt free and funds it’s capex from internal accruals.
Pays hefty dividends.
Has considerable pricing power.
I think the immediate short term concerns are :
Topline growth which was stagnant since 2015. For 2018 it’s around 10% (2200 crore vs 2000 crore net sales). MGL really needs a new city to grow the topline meaningfully as Mumbai is getting congested for new CNG stations etc. (What’s also noticeable is the doubling of listing price in poor topline growth years!)
Operating margin pressure due to NG cost increase. Company hasn’t been able to pass on cost increase in full yet. OPM has come down to 30% in latest quarter against 35%+ in prior qtrs. (In my opinion, the bulls is crude will be short lived. Current crude at ~$75-$80 is way above the threshold where shall gas producers become profitable [approx $60 I read in the BP energy outlook report.] and OPEC is no longer such a king of oil to maintain it’s price. Plus, there is a huge supply glut in NG market which is sure to keep international prices low. So maybe NG prices themselves will come back down. Check out spot prices here: (https://www.eia.gov/dnav/ng/hist/rngwhhdM.htm)
Disclosure: invested and looking to add more. But will probably change my mind if they don’t get any new city come October.