Mahanagar Gas Ltd - a natural monopoly

Stock Opportunities Untested - but worth a good look
455

Q2 Concall Summary and Key Pointers

1 Like
456

Just compared the valuations as on today wrt 2018 from this article,
|Parameter | From 2018 | as on today | remark|
| PE | 17.5 | 10.6 | attractive |
| PB | 4 | 1.7 | attractive |
| Benjamin Graham number| 70.4 | 18 | good margin of safety |
| PEG | 0.21 | 0.59 | undervalued |
| Dividend Yield | 2.2 | 2.83 | good |

4 Likes
457

The February 28, 2026 US-Israel strikes on Iran triggered Iranian threats to close the Strait of Hormuz—a critical route handling 54% of India’s LNG imports. This directly hits the one-third of MGL’s gas supply sourced via RLNG (~1.35-1.4 mmscmd term RLNG + spot) .​

Since the moment i heard the news that supply of LNG would be disrupted based on the Iranian threats, just started to think through the impacts on the CGD sector & MGL’s source gas impact.

From MGL’s last year 2025 investor presentation, i got to know MGL employs a diversified sourcing mix—APM, HPHT, term RLNG, spot RLNG, and domestic gas—for supplying CNG, D-PNG, and I&C customers.

I’m not sure how much of weightage on the sourcing mix. Just tried to use the AI tools to understand the impact on pre-crisis vs cost rises.

Cost Impact for MGL

Pre-crisis baseline:​

  • Blended cost: ₹30.04/SCM

  • RLNG component: ₹40-42/SCM

Expected shock:

  • RLNG costs surge 30-50% to ₹52-63/SCM due to supply disruption and rerouting

  • Blended cost rises to ₹35-40/SCM (16-33% increase)

  • Additional cost burden: ₹5-10 per SCM

Like MGL, all major players (IGL, MGL, ATGL, GAIL Gas) face similar exposure since 20-40% of their sourcing relies on RLNG through Hormuz. Sector-wide margin compression of 15-25% is likely in Q4 FY26 and Q1 FY27.

upcoming quarters may have the margin compression, due to the possible cost rise. Also, will govt step in to support CGD sector by increasing the APM allocation. will have to wait and watch.

5 Likes
458

Six months on from the Hormuz shock, here’s how it actually played out vs. my Feb estimates.

Volume growth — on track

  • FY24: 3.61 mmscmd → FY25: 4.05 mmscmd (+12%) → Q3 FY26: 4.62 (+7.2% YoY) → Q1 FY27 (Jun’26): 4.766 mmscmd (+7.0% YoY)
  • CNG +9.7% YoY, Domestic PNG +9.1% YoY — both ahead of the 8-9% CAGR case for 6.0-6.5 mmscmd by FY30
  • New drag: I&C volume -7.15% YoY (Q1 FY27) on mandated gas curtailments

Margin compression — worse than my Feb estimate

  • Operating margin: ~25-26% (mid-FY25) → 17-20% (late FY25) → 12-17% (last 4 quarters)
  • Net margin: FY24 20.6% → FY25 14.3% → FY26 10.3%
  • FY26 net profit fell YoY (₹1,041 Cr → ₹847 Cr) despite sales +13.5%
  • EBITDA/scm: ~₹7.9 in Q1 FY27, still below mgmt’s ₹8-9 guidance band (down from ~₹10.2 in FY24), though +32% QoQ
  • New negative not in my Feb post: pooled/NWG gas (~21-22% of sourcing mix) discontinued entirely from July 2026; spot LNG touched ~$20/MMBtu; management called Q2 FY27 “slightly worse” than Q1 and declined firm margin guidance

APM relief — government did step in (answers my “wait and watch” line)

  • Aug 18, 2026 scheme (effective Sep 1): extra 200 scm low-cost APM gas per incremental billed domestic PNG connection above threshold, in 2 tranches over 6 months
  • MGL flagged as biggest beneficiary among CGDs (Nomura) — lowest per-connection consumption at 108 scm/yr vs ~131 scm/yr for IGL/Gujarat Gas → more surplus cheap APM gas to subsidize costlier CNG/I&C gas
1 Like