Mahanagar Gas (MGL) shares witnessed a significant decline of 15% in the previous trading session, dropping to ₹1,329 apiece, and marking a 16% decrease from their record high of ₹1,580 apiece. This sudden downturn came after the company lowered CNG prices to pass on benefits to consumers, leading investors to anticipate potential future impacts on the company’s margins.
Additionally, global brokerage firm Citi downgraded its rating on the stock from ‘Buy’ to ‘Sell’ and adjusted its target price to ₹1,405 from ₹1,480 apiece, further affecting investor sentiment towards the stock.
However, domestic brokerage firm Nuvama Institutional Equities sees the recent correction as an opportunity to enter the stock. According to their analysis, MGL is currently trading at 11 times the estimated earnings for FY25, representing a 26% discount compared to IGL’s valuation of 15 times.
Nuvama believes that Mahanagar Gas has the potential for further appreciation due to its favorable valuation relative to historical averages, supported by robust demand and expansion into new geographical areas (GAs). Notably, MGL maintains a debt-free status, significant cash reserves exceeding ₹2 billion, and a dividend yield of 3%.
Therefore, the brokerage maintains its ‘buy’ rating on the stock with a target price of ₹1,601 apiece, suggesting a potential upside of 20.5% from the stock’s recent closing price.
Regarding the recent reduction in CNG prices by MGL, Nuvama estimates that a significant portion of this price reduction is attributed to a decrease in input spot LNG prices, with the balance affecting margins. Despite this, MGL’s competitiveness compared to petrol and diesel has increased, which is expected to drive up volumes.
Furthermore, Nuvama highlights that MGL’s monopoly in pipeline distribution is likely to continue for the foreseeable future, with regulations allowing for an extension of up to ten years. This, coupled with low penetration levels in certain geographical areas, indicates significant growth potential for Mahanagar Gas in the coming years.
Disclaimer: The views and recommendations provided in this article are those of individual analysts and do not necessarily represent the views of legalparivar.com. It is advisable for investors to consult certified experts before making any investment decisions.
