In Tuesday’s trading session, shares of one of the leading natural gas distribution company in India, specializing in the distribution and supply of compressed natural gas (CNG) and piped natural gas (PNG), jumped up to 3 percent After HDFC securities Initiates Buy Target with a 55 percent Upside Potential
Price action
With a market capitalization of Rs. 12,362 crores on Tuesday, the shares of Mahanagar Gas Limited were trading at Rs. 1,291.55 up by 2.7 percent making a high of Rs. 1,297.60 per share compared to its previous closing price of Rs. 1,227.65 per share.
What Happened
Mahanagar Gas Limited, leading natural gas distribution company in India, saw its shares in focus after HDFC securities Initiates “Buy” Target of Rs. 2,000 with a 55 percent upside potential.
Here are the reasons for the potential Target
- CNG Vehicle Registrations Growth: MGL saw a 24 percent YoY increase in new CNG vehicle registrations in FY25YTD, reaching 62,033 vehicles, with December 2024 showing an 8 percent YoY rise. The company expects this trend to continue, supported by competitive CNG pricing and expanding retail outlets in Mumbai.
- Price Hikes to Offset Rising Costs: MGL increased CNG prices by Rs. 1/kg in December 2024, bringing the total price hike to Rs. 3/kg. This measure aims to mitigate the impact of reduced APM gas allocation on its EBITDA margin, and future price hikes and cheaper HPHT gas are expected to improve margins from FY26E.
- Spot Gas Price Impact and EPS Revision: Spot gas prices have risen by 17 percent in the last three months, currently exceeding $15/mmbtu. As a result, MGL’s FY25/FY26 EPS estimates have been cut by 6 percent and 5 percent, respectively, due to the margin contraction caused by rising gas prices.
- Valuation and Target Price: MGL is trading at 11x FY26E EPS, 19 percent below its five-year average. Despite strong long-term growth prospects, the stock is currently undervalued, and HDFC Securities has revised its target price to Rs. 2,000 per share, maintaining a “BUY” rating.
About the Company
Mahanagar Gas Limited (MGL) is a prominent player in the Indian natural gas sector, primarily focusing on the distribution of compressed natural gas (CNG) and piped natural gas (PNG) to residential, commercial, and industrial consumers.
Mahanagar Gas is known for its extensive infrastructure network, including CNG stations, pipelines, and distribution systems, which enable the seamless delivery of natural gas to a diverse customer base.
Future Plans
Mahanagar Gas Limited plans to expand its network by adding 85 to 90 new CNG stations in FY25. The company is also focusing on enhancing its LNG infrastructure as a competitive alternative to diesel, with expectations of increased adoption in the commercial vehicle segment. Additionally, MGL is making continuous efforts to promote CNG vehicles and retrofit diesel vehicles to CNG, driven by regulatory pressures in urban areas.
Key Insights
The company’s strong performance relative to industry standards, with a P/E ratio of 10.83, compared to the industry average of 45.26, indicating that its stock may be undervalued. Additionally, the company has posted impressive growth figures, achieving an average 3-year revenue growth of 20.88 percent and an average 3-year net profit growth of 29.25 percent.
Shareholding Pattern
The ownership structure of Mahanagar Gas Limited is as follows: the promoters hold 32.50 percent, Foreign Institutional Investors (FIIs) own 31.49 percent, Domestic Institutional Investors (DIIs) control 16.67 percent and the public holds 19.34 percent.
Financials
The company’s revenue rose by 13.5 percent from Rs 1,614.64 crore to Rs 1,833.18 crore in Q2FY24-25. Meanwhile, Net profit declined from Rs 338.5 crores to Rs 283.51 crore during the same period.
Key Financial ratios
Mahanagar Gas Limited has an impressive Return on Equity (RoE) of 20.65 percent and a Return on Capital Employed (RoCE) of 27.15 percent. Furthermore, the company’s debt-to-equity ratio is 0.03.
Written by Sridhar J
