Synopsis: Mahanagar Gas Ltd had an exceptional FY24 due to favorable market conditions that led to reduced feedstock costs. However, as the company heads into the current financial year, it faces potential margin pressures that may impact its profitability. With a strategic focus on operational efficiency, market expansion, and cost management, MGL aims to navigate these challenges and sustain its growth trajectory.
Mahanagar Gas Ltd (MGL) enjoyed a highly profitable FY24, largely due to favorable feedstock costs. Market-linked LNG prices saw a significant decline during the January-March quarter, which greatly benefited the company. However, the outlook for the current financial year suggests that MGL may face tighter margins despite its strong performance in the previous year.
Key Highlights from FY24
1. Lower Feedstock Costs: MGL's profitability in FY24 was bolstered by a sharp decline in market-linked LNG prices. This reduction in feedstock costs enabled the company to achieve an impressive Ebitda per standard cubic meter (scm) of about ?14, which is a multi-year high.
2. Valuation and Market Position: While MGL's stock valuations are not considered pricey, concerns over future margins might weigh on its performance. Investors and analysts are cautious about how these margin pressures will impact the company's stock.
Outlook for the Current Year
1. Margin Pressures: Despite the robust performance in FY24, MGL has indicated that it expects its Ebitda per scm to decline to between ?9-11 over the next 2-3 years. This anticipated drop is attributed to the expected rise in feedstock costs and other market conditions that may not be as favorable as the previous year.
2. Revenue and Profitability: Even though MGL saw marginally lower revenue in FY24, its profitability soared due to lower gas procurement costs. However, maintaining such high profitability levels will be challenging in the face of increasing costs.
Strategic Focus
To navigate the anticipated challenges, MGL is likely to focus on:
- Operational Efficiency: Enhancing operational efficiencies to mitigate the impact of rising costs.
- Market Expansion: Exploring opportunities to expand its customer base and market reach to drive revenue growth.
- Cost Management: Implementing stringent cost control measures to maintain profitability despite narrower margins.
