Mahanagar Gas IPO opens; worthy of subscription

Mahanagar Gas (MGL) IPO opens on Tuesday and will close on June 23. The company offers to sell up to 24,694,500 equity shares for cash, in the band of Rs 385 – 421. Out of which, it allots 7,348,350 equity shares at Rs 421 per share aggregating to approximately Rs 309.3 crore to 25 Anchor Investors.

The list of major foreign and domestic anchor investors is:

BNP Paribas, Morgan Stanley, DB International Asia Limited, Abu Dhabi Investment Authority-  Merrill Lynch Capital Market, DSP BlackRock, SBI Life Insurance Company, ICICI Prudential MF, Kotak MF, Birla Sun Life MF, Franklin Templeton Investment Funds, UTI, Sundaram Mutual Fund and others.

On the financial front, MGL’s top line has increased by CAGR of 12 per cent within last five years. The company’s net profit also has risen by CAGR of 0.1 per cent from FY12 to FY16 period. It expects capex to be in the range of Rs 250 crore going forward, mainly due to expansion in Raigad district. MGL has around Rs 500 to Rs 600 crore cash on its books as of FY16.

On valuation front, MGL is available at PE multiple of 12.2x times to 13.4x times at its lower and upper band respectively which is quite lower as compared to IGL’s PE multiple of 18.7x times. The book value per share for MGL is Rs 154 per share and PB multiple of 2.5x times looks attractive against PB multiple of IGL of 3.44x times. The company’s ROE stands at 20.2 per cent; while IGL’s ROE was at 17 per cent in FY16. Hence, it is worthy of subscription.

MGL is one of India’s leading natural gas distribution companies. The company has already connected approximately 8.2 crore households and over 2600 small commercial and 55 industrial establishments. It also supplies CNG to more than 4.2 crore vehicles, which include above 1.9 crore rickshaws and over 50 lakhs taxis & above 1.8 crore cars in Mumbai, Thane, Mira-Bhayander, Navi Mumbai and beyond.