Mahanagar Gas: Will the tailwind come into play for the outperforming gas counter?

Shares of Mahanagar Gas Ltd (MGL) continue to draw attention from analysts and investors post its latest round of price hike and analysts' meeting held in June. Brokerage firms continue to remain positive on this outperformer and see more upside in the city gas distribution player on the back of multiple tailwinds.
 

Mahanagar Gas hiked prices for compressed natural gas (CNG) and domestic piped natural gas (PNG) in the Mumbai Metro Area. The city-gas distributor raised prices by Rs 1.50 per kg for CNG, bringing the price up to Rs 75 per kg. Similarly, PNG prices were hiked from Rs 1 per standard cubic meter (SCM) to Rs 48 per SCM. Both prices are inclusive of taxes.
 

Shares of Mahanagar Gas dropped more than 2.4 per cent to Rs 1672.65 during the trading session on Thursday, compared to its previous close at Rs 1,715.05 in the previous trading session on Wednesday. The total market capitalization of the company slipped below Rs 17,000 crore mark.
 

"The current market price factors only 5 per cent volume growth. We anticipate the accelerated infrastructure rollout in existing and new geographical areas, the acquisition of Unison Enviro’s  three GAs, competitive CNG price versus petrol/diesel, and robust CNG vehicle registrations data should support strong volume growth of 10.4 per cent CAGR over FY24-26E," said HDFC Securities.
 

"At the current price, MGL is trading at 13.7 times March25E EPS, broadly in line with its long-term average, despite a better volume g
 

rowth outlook. We, therefore, reiterate our 'buy' rating on MGL with a revised target price of Rs 1,840 per share" it added.MGL is focusing on growing its industrial volumes to diversify and reduce its reliance on CNG volumes. It has signed up large industrial clients in the MIDC zones of Taloja, Patalganga, Khalapur and Roha. The acquisition of Unison Enviro has added new geographical areas to the company’s network, said SBICap Securities.
 

"Stable high single digit volume growth along with geographical and business diversification should support the valuation," said the brokerage firm with a 'buy' rating and a target price of Rs 1,880.60. "Volatility in natural gas prices; price cuts in alternative fuels; regulatory changes; incentivization of EVs over CNG vehicles are seen as the key risks by the brokerages.
 

Mahanagar Gas has outperformed the headline indices. Shares of MGL have gained nearly 45 per cent in the year 2024 so far, while the stock has gained more than 20 per cent in the last one month period. The stock is up 55 per cent in the last one year.
 

Other brokerage firms see MGL to be reap benefits of recently launched CNG bikes. It could help to partly address some of the growth challenges, said JM Financial Services, which as a 'buy' rating on MGL with a target price of Rs 1,600. Nuvama Institutional Equities has a same rating on the stock with a target price of Rs 1,670.

 

 

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