MGL shares surge over 6% following analysts’ meet; global brokerages upbeat

Shares of Mahanagar Gas Limited  (MGL) in Monday’s trade (June 10, 2024) rallied up to in early trade following the company’s analyst meeting on June 7. In the previous session, the stock amid broad-based buying ended over 1 per cent higher at Rs 1380 apiece on the BSE.

Highlighting the city gas distribution (CGD) sector’s future potential, the company in the investor presentation noted that the sector will log growth at a faster pace as natural gas becomes a preferred fuel. The government has planned to invest $67 billion in the natural gas sector over the next six years, it added.

Further, providing a larger industry view, it added that over 2-3 years, CGD industry will see consolidation once new GAs reach scale as smaller players exit in favour of larger and more serious players.

The city-gas distributor attributes growth at the company to increased customer base and coverage area. The company’s CNG customers have increased at a 5-year CAGR of 7.57 per cent, while PNG customers recorded 5-year CAGR of 9.65 per cent. Of the total sales logged in FY24, nearly 72 per cent is accounted for by CNG, while domestic PNG and industrial and commercial PNG contributed 14.4 per cent and 13.8 per cent, respectively.

Company’s future outlook

For the ongoing FY25, the company has a capex plan of around Rs 1,000 crore, of which Rs 800 crore will be for MGL, while the remaining Rs 200 crore for Unison Enviro Private Limited (UEPL). UEPL,  a CGD company having authorisation for 3 geographical areas (GAs) was acquired by MGL in February 2024.

It expects volume growth during the period to be in the range of 6-7 per cent. Also it mentioned that it remains committed to growth avenues and will look for organic and inorganic suitable opportunities.  Also, it will target diversification avenues in energy related businesses.

What global brokerages say about MGL?

Global brokerage UBS has continued with its ‘buy’ rating on the counter with a target of Rs 1600, implying potential upside of 16 per cent from the last close. The brokerage pointed out that the company’s investment in infrastructure will drive volume growth. Also, the country’s leading natural gas distribution company will stand to benefit from the potential inclusion of natural gas in GST. Besides, the company’s foray into the electric vehicle mobility segment bodes well for the entity.

Jefferies has also retained its ‘buy’ view on the counter with a target of Rs 1600 per share.