The shares of the Small-Cap company specializing in the distribution of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) to residential, commercial, and industrial customers, are in focus after a leading Indian brokerage firm, Motilal Oswal, initiated a Buy target of Rs. 1,700 with a 35 percent Upside Potential.
With a market capitalization of Rs. 12,535.39 crores on Tuesday, the shares of Mahanagar Gas Ltd rose by 1.08 percent, reaching a high of Rs. 1272.80 per share compared to its previous closing price of Rs. 1259.15 per share.
Mahanagar Gas Ltd, engaged in the distribution of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) to residential, commercial, and industrial customers, is in focus after a leading indian brokerage firm, Motilal Oswal, initiated a Buy Target of Rs. 1,700 on it with an upto 35 percent Upside Potential from the previous day’s close.
The reasons for the “Buy” target
Robust Volume Growth with Infrastructure-Led Scalability: MAHGL is aggressively expanding its CNG infrastructure, with CNG station additions increasing from 15 in FY21 to 40 in FY25. It plans to add ~50 more stations in FY26 and 250 stations by FY30, ensuring consistent volume growth.
Strategic Land Acquisition & Partnerships for Faster Rollout: The company has secured key land parcels and partnered with BEST to open 15 depot-based CNG stations (8 already operational), enabling faster expansion in prime locations like Sion, Wadala, and Mumbai Port Trust, with large-format (mega) stations under development.
Limited EV Substitution Risk Enhances Volume Visibility: CNG’s largest user segment, three-wheelers (34% of volumes), faces minimal near-term EV threat due to Mumbai’s infrastructure limitations. This makes MAHGL’s volume base more resilient than peers like IGL and GUJGA, which face higher EV adoption risk.
Strong Financial Position with Healthy Return Ratios: MAHGL has a zero-debt balance sheet, and while RoE and RoCE are expected to moderate slightly (RoE: 18.9% in FY25 to 16.1% in FY27), they remain healthy. Dividend payout is also rising from 28.4% to 40%, supporting investor returns.
Long-Term Diversification into New Energy Segments: The company is strategically entering the battery manufacturing, LNG, and CBG (compressed biogas) segments, which may drive future earnings growth and reduce reliance on traditional city gas distribution revenues.
Stronger vs. Peers in Both Growth and Margins: MAHGL outperformed IGL and GUJGA in FY25 volume growth (12% vs. 6%/3%) and is expected to maintain this lead with 9% CAGR through FY27. It also benefits from a more stable margin profile due to better sourcing, lower EV risk, and strong commercial segment exposure.
Attractive Valuation with Margin of Safety: The stock trades at a reasonable valuation of 11.1x FY27E EPS vs. the historical average and sector peers. The target price of ₹1,700 is based on a 15x FY27E EPS of ₹112, reflecting confidence in sustained growth and profitability.
Financials & Others
The company’s revenue rose by 24.30 percent from Rs. 1,590 crore to Rs. 1,976 crore in Q1FY25-26. Meanwhile, the Net profit rose from Rs. 285 crore to Rs. 324 crore during the same period.
The company has a strong financial profile with a Return on Capital Employed (ROCE) of 22.9 percent and a Return on Equity (ROE) of 17.7 percent. Its stock is attractively valued with a P/E ratio of 11.5, which is lower than the industry average of 20.4.
The company has a PEG ratio of 0.64, indicating potential undervaluation relative to its growth. Additionally, the company has maintained a healthy dividend payout ratio of 23.8 percent, reflecting consistent shareholder returns and sound capital allocation practices.
In Q1 FY26, the company’s sales volume was primarily driven by CNG, which accounted for 70.50 percent. This was followed by DPNG at 13.45 percent, industrial sales at 12.82 percent, and commercial sales at 3.23 percent.
Mahanagar Gas Ltd. (MGL) is one of India’s leading natural gas distribution companies, founded in 1995 and based in Mumbai. The company specializes in supplying piped natural gas (PNG) to households, businesses, and industries, as well as compressed natural gas (CNG) for vehicles in Mumbai and adjoining areas.
The company is one of India’s largest City Gas Distribution (CGD) players with over 7,539 km of pipeline and 385 CNG stations. With more than 30 years of consistent growth, it serves over 1.13 million CNG vehicles and 2.85 million PNG households. The company ensures secure gas availability and maintains a strong focus on health, safety, and the environment.
Written by Sridhar J
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