City gas stocks in focus: Gujarat Gas, MGL, IGL surge up to 5.5% as government raises allocation - brokerages recommend this

Shares of city gas distributors – Gujarat Gas, Mahanagar Gas and Indraprastha Gas jumped up to 5.5 per cent on the BSE intraday during Thursday’s session as the government diverted some natural gas from industries to city gas operators in a bid to moderate CNG and piped cooking gas prices.

Individually, Gujarat Gas shares surged by 5.5 per cent to Rs 479.5 per share, followed by Mahanagar Gas and Indraprastha Gas, gaining around 5 per cent each to Rs 854 and Rs 398.6 per share, respectively, on the BSE intraday.  

The Ministry of Petroleum and Natural Gas in a notification issued on Wednesday amended an earlier order to increase allocation of domestically produced gas to city gas operators, as per the news agency PTI report.

The allocation for city gas operators like Indraprastha Gas Ltd in Delhi and Mahanagar Gas Ltd of Mumbai has been increased from 17.5 million standard cubic meters per day to 20.78 mmscmd, officials said.

The increased allocation will meet 94 per cent of the demand for CNG supplies for automobiles and piped cooking gas to households in the country. Previously, about 83 per cent of the demand was met and the remaining was met through the import of LNG by GAIL.

Domestic brokerage JM Financial while commenting on strong June quarter earnings of FY23 said, “Despite near-term concerns on margin/volume on account of sustained high spot LNG prices, we reiterate Buy stance with a target of Rs 600 per share as we expect volume grow the momentum to sustain in the medium to long term led by rise in gas use in the industrial segment.”

Similarly, ICICI Securities on Mahanagar Gas amid robust Q1 earnings said, “With ahead-of-estimated volume growth and abysmal valuations, coupled with robust return ratios, we see the risk-reward ratio strongly tilted in favour of reward. Upgrade to BUY, with a target price of Rs 980 per share.”

YES Securities maintained a BUY rating on Indraprastha Gas with a target of Rs 520 per share. It said, “Our target is premised upon an earnings CAGR of ~10% (FY21-30e), driven by a ~11% CAGR(FY21-30e) in gas sales and EBITDA per unit of ~6.5/unit.”