Mahanagar Gas, Indraprastha Gas Shares Jump As UBS Sees Strong Volume Growth

Shares of gas distributors Indraprastha Gas Ltd. and Mahanagar Gas Ltd. surged more than 6% in Tuesday's session after UBS upgraded the target prices of the firms as it expects volume growth.

Indraprastha Gas' rating was revised up to a 'buy' from a 'sell'. While, Mahanagar Gas' rating was retained at a 'buy'.

UBS said its earlier bearish stance on Indraprastha Gas was due to tapered volume growth in previous quarters and possible electrification risk. The gas distributor's volume rose 5.5% year-on-year in the first half of 2024, compared to the second half of 2023 at 3.5%.

The company's accelerated CNG station additions have kept up with a growing CNG vehicle fleet, while the pace of electrification has lagged, UBS said. "We now expect IGL's volume growth trajectory to further improve, from about 4% YoY in FY24 to an 8.2% CAGR in FY24- 27E," it said.

UBS has raised its target price to Rs 700 per share, from Rs 400 apiece. This implies a 32.1% upside.

The volume growth will be driven by CNG station network expansion, a robust increase in CNG vehicles in its areas, and strong volume ramp-up in new geographies, it said.

For Mahanagar Gas, elevated volume growth trajectory could sustain in the coming quarters, UBS projected. The company reported 12.6% YoY volume growth in first half of 2024, compared with 4.1% in 2023. The management has guided for 6-7% volume growth, UBS noted.

"Additionally, the inorganically acquired areas of Unison Enviro will likely provide another leg of growth," it said. Higher earnings expectations drove an increase in UBS target from Rs 1,600 per share to Rs 2,400 apiece, implying an upside of nearly 32%.

"The stock's recent re-rating seems to partly reflect inorganic growth. However, we do not view valuations as demanding (MGL is trading slightly above its historical valuations), given current momentum and growth prospects."

Infrastructure development and CNG fleet expansion will drive volumes, UBS said.

Shares of Indraprastha Gas rose as much as 6.21% before paring gains to trade 4.96% higher at Rs 556.15 apiece, as of 11:50 a.m., compared to a 0.1% rise in the NSE Nifty 50.

The stock has risen 33% year-to-date and 22.3% in the last 12 months. Total traded volume so far in the day stood at 6.64 times its 30-day average. The relative strength index was at 57.86.

Out of 36 analysts tracking the company, 14 maintain a 'buy' rating, 11 recommend a 'hold' and 11 suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies a downside of 4.2%.

The scrip rose as much as 6.68%, its highest level, before paring gains to trade 5.78% higher at Rs 1,926.60 apiece, as of 11:47 a.m. This compares to a 0.1% increase in the NSE Nifty 50.

It has risen 60.7% year-to-date and 87.5% in the last 12 months. Total traded volume so far in the day stood at 8.21 times its 30-day average. The relative strength index was at 63.65.

Out of 33 analysts tracking the company, 17 maintain a 'buy' rating, seven recommend a 'hold' and nine suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies a downside of 5.1%.