Mahanagar Gas delivers resilient Q1 FY27 margins as CNG volumes and PNG connections expand

Q1 FY27 Performance: Strong Margin Outperformance

Motilal Oswal Financial Services’ August 1, 2026 results update describes Mahanagar Gas’ Q1 FY27 performance as resilient despite sector headwinds. The broker reiterates its Buy view after EBITDA per standard cubic metre of Rs 7.9 exceeded its estimate by 43 per cent. Total sales volume of 4.8 mmscmd was in line with expectations and grew 7 per cent year-on-year.

Depreciation, interest and other income were below Motilal Oswal’s estimates. Despite the year-on-year decline in reported EBITDA and PAT, the earnings outcome was materially ahead of the broker’s expectations.

Sequential Pricing and Cost Movements Support Margins

EBITDA per standard cubic metre rose by Rs 1.7 quarter-on-quarter as realisations increased by Rs 5.9 per standard cubic metre and operating expenses declined by Rs 0.5 per standard cubic metre. This was partly offset by a Rs 4.7 per standard cubic metre increase in gas costs.

Industrial and commercial PNG realisations increased by Rs 27-32 per standard cubic metre sequentially. These prices are linked to alternate fuels, including bulk LPG, furnace oil, LSHS and LDO, and supported the quarter’s margin performance.

Volume Growth and Network Expansion

Q1 FY27 total volume was 4.766 mmscmd, compared with 4.456 mmscmd in Q1 FY26. CNG and domestic PNG volumes increased, while industrial and commercial PNG volumes declined.

Management highlighted 97,461 domestic PNG conversions under PNG Drive 2.0, taking cumulative domestic PNG connections to about 2.17 million. During the quarter, Mahanagar Gas:

• Added 156.57 km of pipeline, taking the network to 8,477 km.
• Added one CNG station, taking the total to 519.
• Added 291 industrial and commercial customers, taking the total to 6,198.
• Registered 26,007 additional CNG vehicles, taking the total to more than 1.31 million.

Management’s long-term normalised volume-growth guidance is 8-9 per cent year-on-year. UEPL volume was 0.322 mmscmd in Q1 FY27, versus 0.224 mmscmd a year earlier.

Investments, Gas Sourcing and Capital Expenditure

Mahanagar Gas invested Rs 49 million during the quarter. This included Rs 10 million in 3EV Industries through optionally convertible debentures and Rs 39 million to acquire a 26 per cent stake in FPEL Reliant Energy Private Limited as a captive user.

As of March 2026, the gas sourcing mix comprised 30 per cent APM gas, 22 per cent NWG and pooled gas, 15 per cent HP-HT gas and 21 per cent Henry Hub-linked gas. Pooled gas, priced at USD 12.5-13 per mmbtu, was discontinued from July 4, 2026.

Although Mahanagar Gas has contracted 1.5 mmscmd of Henry Hub-linked gas, force majeure means that it will not be fully available. Motilal Oswal notes that full allocation could lower gas sourcing costs.

Management guided FY27 capital expenditure of Rs 15,000-18,000 million after Q1 FY27 capex of Rs 3,500 million. Management also indicated that debt could increase during the year.

Growth Outlook and Estimates

Motilal Oswal forecasts a 9 per cent volume CAGR over FY26-28. Growth is expected to be supported by collaborations with OEMs and transporters to convert commercial CNG vehicles, along with guaranteed price discounts for new industrial and commercial PNG customers.

Valuation and Key Risks

Motilal Oswal’s target price is Rs 1,560, based on 13 times December 2027E P/E. This compares with the stock’s 8.9 times FY28E standalone P/E at the report CMP of Rs 1,121.

Key risks to the thesis are:

• Continued weakness in industrial and commercial PNG demand.
• A sharp correction in industrial and commercial PNG realisations.
• Higher gas costs resulting from constrained Henry Hub-linked supply.
• Potential debt funding for the planned capital expenditure.