Shares of one of India’s largest city gas distribution company rose up to 9 percent to Rs 1,117.75 per share after Jefferies revised its ‘buy’ recommendation to a 28 percent increase from ‘neutral’ amid strong earnings visibility.
At 12:26 p.m. on Tuesday, Mahanagar Gas Ltd shares were trading at Rs 1,109 up Rs 80.05 or 7.79 percent from the previous close on the National Stock Exchange.
The company’s share has delivered returns of 21 percent in six months and 38 percent in a year.
The company’s revenue has increased by 16 percent yearly, from Rs 1,454 crore in Q1FY23 to Rs 1,690 crore in Q1FY24. During the same period, the company’s net profit climbed by 99 percent, from Rs 185 crore to Rs 365 crore.
The Company’s return on equity increased from 16.59 percent in FY22 to 19.11 percent in FY23, while the return on capital employed rose from 20.82 percent to 23.81 percent during the same period.
Based on the company’s strong future prospects, Jefferies has revised its target price on Mahanagar Gas to Rs 1,320 a share, representing a 28% upside from Friday’s close price of Rs 1,028.85.
The rationale behind providing such a recommendation is
● According to the brokerage, the company has recently partnered with car manufacturers to provide free fuel cards worth Rs 20,000 to car buyers. The company aims to boost adoption among Light commercial vehicles fleet operators for optimistic growth and confidence about expansion and seeks to increase CNG use among LCV fleet owners. In addition, 500 MSRTC diesel buses in MGL gas zones are being converted with CNG kits. These activities are projected to boost volume growth by 7-8%.
● Jefferies upgraded its FY 24/25 earnings projection to 6 percent//27.5 percent depending on the better volume and margin estimates.
● Recently, MGL announced a collaboration with Brihanmumbai Municipal Corporation (BMC) to build Asia’s largest bio-gas plant in Mumbai.Once completed the plant would be able to process one-third of Mumbai’s daily wet waste.
● The company has obtained 0.2 mmscmd of high-pressure, high-temperature gas and may receive more owing to CGDs’ high allocation priority. With higher volumes expected from RIL and ONGC in FY24-25, Jefferies forecasts excellent profit margins for Mahanagar Gas, with less reliance on LNG.
Mahanagar Gas Ltd is engaged in the business of City gas distribution, presently supplying natural gas in the city of Mumbai including adjoining areas and the Raigad District in the state of Maharashtra.
Written by Omkar Chitnis
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