Mahanagar Gas Gets A 'Buy' Rating From HDFC Securities, Revises Target Price

HDFC Securities Institutional Equities

Stocks To Buy: We reiterate our Buy rating on MGL with a revised target price of Rs 2,200/share.

The Mahanagar Gas Ltd.'s stock price has corrected ~36% and underperformed the Sensex by ~34% in the last three months due to the potential adverse impact of drastic cut in administrative price mechanism gas allocation for city gas sector. We estimate Mahanagar Gas’ Ebitda could be impacted by as much as Rs ~5-5.5/scm due to the reduction in APM gas allocation.

Volume growth could be adversely impacted in the near term as we expect MGL to take further price hikes to offset the rising gas cost. However, we expect minimal impact on long-term volume growth as MGL replaces the higher priced spot gas with non-APM domestic gas and as LNG prices moderate from H2 FY26. Robust CNG vehicle registration data; accelerated addition of retail outlets; customer additions in the industrial segment; volume growth contribution from the acquired three GAs of Unison Enviro Pvt. Ltd.; and competitive CNG price vs petrol/diesel should support strong volume growth of 12% CAGR over FY24-26E.

At the current price, MGL is trading at 9.1 times Mar-26E EPS, at a 27% discount to its five-year average despite a strong volume growth outlook in the longer term.

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