Mahanagar Gas goes for inorganic route

Mahanagar Gas (MGL) is acquiring 100% of Unison Enviro Private Limited (UEPL).

  • UEPL incorporated in December 2015, is a subsidiary of Ashoka Buildcon. The Company has been supported by Morgan Stanley India Infrastructure fund since pre revenue days.
  • It has been granted authorization from Petroleum and Natural Gas Regulatory Board (PNGRB) to develop City Gas Distribution business in districts of Ratnagiri, Latur and Osmanabad in the state of Maharashtra and Chitradurga & Davanagere in the state of Karnataka. It is engaged in supplying natural gas to domestic, commercial, industrial and transport sector.
  • MGL will be paying a total cash consideration of Rs 531 crore for 100% acquisition.
  • UEPL’s reported turnover
    • FY 22 – Rs 89.44 cr
    • FY 21 – Rs 23.52 cr
    • FY 20 – Rs 7.35 cr
  • It reported losses of Rs 24.94 cr in FY 22 and had a net worth of Rs 83.44 cr as at March 31, 2022.
  • Transaction is subject to approval from PNGRB.

To UEPL shareholders, transaction seems to have yielded decent returns. It helps Ashoka to exit out of a non core business, provides it with some liquidity and mitigates the risk to fund any future losses. To Morgan Stanley, it helps in exiting out of an average investment.

To MGL, the transaction definitely has come at a premium. MGL’s own current valuations are – trailing P/E 15x, P/B 2.5x and Price/Sales 1.7x. The subject transaction is at significant premium on all comparable parameters – UEPL is loss making, P/B > 6x, Price/ Sales >4.5x.

However, given that Companies like MGL need inorganic route to grow, rarely would opportunities come cheap. Key is how quickly MGL sweats the acquired assets and ramps up the growth. I would not hazard a guess and instead would wait for the actual achievements.

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