Mahanagar Gas Valuation Excel Model and Intrinsic Value of Shares

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Mahanagar Gas Valuation : About the Company

The company operates in an asset-heavy industry in which market dominance comes through scale, capacity, reach and infrastructure. MGL connects 1.2+ million households as well as over 4000+ small commercial and industrial establishments. They also supply CNG to more than 700,000+ vehicles in Mumbai, Thane, Mira-Bhayander, Navi Mumbai and nearby areas. Besides this 3342 ST/ TMT / MSRTC / NMMT / PMPML buses, and more than 6580 /Tempos/Trucks/Private buses are using CNG supplied through its wide distribution network. From here, we go ahead with Mahanagar Gas Valuation and Intrinsic Value of its shares.

Read more here: Mahanagar Gas Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares
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You can get the complete excel model used for this analysis from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for Mahanagar Gas Valuation.

Financial Year Revenue Growth Rate
Year 1 8%
Year 2 -20%
Year 3 30%
Year 4 18%
Year 5 15%
Revenue Growth Rates: Mahanagar Gas Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : Mahanagar Gas Valuation
Financial Statements Forecast : Mahanagar Gas Valuation

Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows.

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Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm 4384 2633 4497 5936 7508
Free Cash Flow to Equity 4445 2629 4502 5941 7514
FCFF and FCFE values: Mahanagar Gas Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 7508.10
Growth Rate 6.00%
Cost of Capital 12.98%
Terminal Value 113975.22
Terminal Value: Mahanagar Gas Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for Mahanagar GasValuation.

WACC Calculation for Mahanagar Gas Valuation
WACC Calculation for Mahanagar Gas Valuation

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for Mahanagar Gas Valuation. (Units are INR Millions)

PV of FCFF and FCFE for Mahanagar Gas Valuation.
PV of FCFF and FCFE for Mahanagar Gas Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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Mahanagar Gas Valuation Units
PV in INR Million 78691
No of Shares Outstanding (In Million) 99
Intrinsic Value 794.85
Current Market Price of Share 1115.00
Current Discount/Premium 40%
Intrinsic Value of the Shares: Mahanagar Gas Valuation

Mahanagar Gas Valuation and Intrinsic Share Price = INR 794.85

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References: Investopedia
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)

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