Stock Of The Day: Mahanagar Gas Faces Margin Risk—Analyst View, Key Levels To Watch
Mahanagar Gas rating was cut to 'sell' and target price reduced by 5% to Rs 1,405 apiece by Citi.
Indian oil minister at a recent industry event said that the government is willing to take measures to ensure that the full benefit of gas reforms is passed on to end-consumers.
This has raised concerns about pressure on margins of city gas distributor company like Mahanagar Gas Ltd., according to analysts.
Shares of the company tumbled 9.44% to Rs 1,417.55 per share on Wednesday, compared to 0.29% loss on the Nifty 50 as of 09:34 a.m. The stock has gained 1.94% in the past month and 58.6% in the past year.
Key Levels To Watch
Resistance level: Rs 1,580 (life-high made yesterday)
Support: Rs 1,380 (5-week low)
Citi's Take
Citi attributed its concerns to the oil minister's latest statements at an industry meet, wherein the minister said the full benefits of the government's gas reforms have not been passed on to end-consumers, as evident from the strong financial performance of the city gas distributors.
The brokerage also highlighted that the Petroleum and Natural Gas Regulatory Board announced in February 2024 that the board will be setting up a high-level expert committee to review the existing regulatory framework. Citi interprets this as creating a potential overhang on the sustainability of high margins for city gas distributors.
Threat To Mahanagar Gas' Margins
Mahanagar Gas' margins are more susceptible to any drastic steps undertaken by the government in the future due to the premium in margins it enjoys. The brokerage said that any measures undertaken could renew concerns on exclusivity as well as on margins.
Mahanagar Gas stand to loss more than those its competitors given its current per unit Ebitda margins of Rs 13 per standard cubic meter of gas compared to its competitors Indraprastha Gas and Gujarat Gas, Citi said.
Mahanagar Gas Cuts CNG Prices
Mahanagar Gas has also cut its CNG prices in and around Mumbai by Rs 2.5 per kg to Rs 73.5 per kg with effect from 12 a.m. on March 6. The price cuts were made on the back of a reduction in gas input costs.
MGL's CNG price now offers consumers 53% and 22% savings when compared to petrol and diesel.
Street Wrap
Mahanagar Gas Ltd. ratings were downgraded to 'sell' by Citi as the company's margins are more susceptible to any regulatory pressure.
The brokerage also cuts the city gas distributor's target price by 5% to Rs 1,405 on the back of potential lower per unit Ebitda margins in the long term.
Of the 34 analysts tracking the stock, 20 maintain a 'buy' and eight recommend a 'hold' and six suggest a 'sell', according to Bloomberg data. The average of 12-month analysts' price targets suggests a downside potential of 9.2%.
