120% Dividend: Natural Gas Stock Of Rs 1,300 To Turn Ex-Dividend In February; Should You Buy Or Sell?

Mahanagar Gas, the natural gas distribution giant, has made waves in the financial markets by declaring an impressive 120% dividend of Rs 12 per share. The company's dividend announcement for the financial year 2023-2024 has left investors eagerly anticipating the payout.

In a recent filing, Mahanagar Gas revealed its decision to distribute an interim dividend of Rs 12 per equity share, each having a face value of Rs 10. This translates to a remarkable 120% dividend for the shareholders. The current face value of each stock is Rs 10, and the dividend will be calculated based on this value.

To determine the eligibility of shareholders for this generous dividend, the company has fixed February 5, 2024, as the record date. Investors holding Mahanagar Gas shares as of this date will be entitled to the dividend payout.

Mahanagar Gas has assured eligible shareholders that the Rs 12 per share dividend will be disbursed within 30 days from the date of the declaration. This announcement comes on the back of the company's dividend payments in 2023, where it distributed Rs 16 in August and Rs 10 in February. The trend continued from 2022 when shareholders received Rs 15.50 in August and Rs 9.50 in February. Notably, in 2021 and 2020, Mahanagar Gas distributed Rs 23 and Rs 35, respectively, per share.

Mahanagar Gas, a constituent of the S&P BSE 500 index, has demonstrated strong performance in the market. According to BSE analytics, its shares have witnessed a 14% climb on a year-to-date basis. Over the past three months, the stock has delivered a positive return of 36%, and on an annual basis, investors have enjoyed a significant gain of 59%.

The 52-week range for Mahanagar Gas shares on BSE is Rs 1,386 to Rs 831. As of January 25, the company commands a market cap of Rs 13,572.56 crore, highlighting its significant presence in the market.

In a recent brokerage report, Anand Rathi lauded Mahanagar Gas's Q3 operating results, citing higher-than-expected margins and a standout sharp volume recovery of 7.6% year-on-year. The report indicates that the company's performance has surpassed initial estimates, positioning Mahanagar Gas as a promising investment in the energy sector.

The report expresses optimism about the steady volume recovery, anticipating it to be a driving force behind a potential re-rating for Mahanagar Gas. The sustained growth in volumes, coupled with the company's commitment to enhancing margins, positions it favourably for a positive market reevaluation.

Anand Rathi reaffirms its confidence in Mahanagar Gas by reiterating a 'Buy' recommendation. The analysts retain their earnings estimate and project a target price of Rs 1,622 per share over the next 12 months. This target price is based on a 12x FY26e P/E (price-to-earnings) ratio, reflecting their positive outlook for the company's future earnings potential.

Mahanagar Gas reported a consolidated net profit of Rs 317.18 crore in the December 2023 quarter, marking an impressive 84% YoY increase. This substantial growth is attributed to lower gas costs. However, the net profit witnessed a marginal decline sequentially, standing at Rs 338.50 crore in the preceding quarter.

The company's revenue from operations during the quarter amounted to Rs 1,723.77 crore, experiencing a decline from the Rs 1,838.44 crore recorded in the same period the previous year. On a positive note, Mahanagar Gas's EBITDA in Q3 reached Rs 496.76 crore, showing a substantial 72.27% increase compared to the same quarter in the previous year.

The total volume for the company stood at 3.671 mmscmd (million metric standard cubic meters per day), indicating a growth of 2.69% compared to the previous quarter. Noteworthy is the growth in CNG volumes by 1.92% quarter-on-quarter, while PNG (domestic) and PNG (industrial/commercial) witnessed increases of 7.97% and 1.52%, respectively.

In a recent report, brokerage firm Prabhudas Lilladhar provided a comprehensive analysis of Mahanagar Gas's Q3FY24 performance, outlining both strengths and potential challenges. While acknowledging a year-on-year total volume growth of 7.6% to approximately 3.7 million metric standard cubic meters per day (mmscmd), the report notes a quarter-on-quarter decline in EBITDA and PAT, signalling a nuanced financial picture.

The report projects a muted volume growth of 3% compound annual growth rate (CAGR) over the fiscal years 2024 to 2026. Additionally, it estimates an EBITDA per standard cubic meter (scm) of Rs 14 for FY24, Rs 10 for FY25, and Rs 10 for FY26.

The report sheds light on Mahanagar Gas's current stock valuation, indicating that the company is trading at 14.3 times the estimated FY26 Earnings Per Share (EPS) and 2.2 times the estimated FY26 Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA).

In light of their analysis, Prabhudas Lilladhar maintains a 'Reduce' rating on Mahanagar Gas's stock. The brokerage firm sets a target price of Rs 1,124 per share, which is derived from a 12 times multiple of the estimated FY26 EPS.

Despite the decline in sequential net profit, Mahanagar Gas shares settled with gains of 2.5% on January 25, closing at Rs 1,379 per share on the National Stock Exchange (NSE).

As per analyst projections and the company's strategic initiatives, Mahanagar Gas is poised for growth in the coming years. The steady volume recovery and measures taken to drive growth suggest a positive outlook, making it an attractive proposition for investors.

Mahanagar Gas's declaration of a substantial dividend, coupled with its robust market performance and strategic initiatives, positions the company as a standout player in the natural gas distribution sector. Investors are eagerly awaiting the dividend payout, and analysts express optimism regarding the company's future prospects.