2 Gas Stocks To Buy That Could Benefit From Favourable Policies

Sharekhan has recommended buying the stocks of select city gas distribution companies in its latest reports. The company has picked the stocks of Mahangar Gas and Indraprastha Gas as its top picks from the sector. Take a look why it is recommending to buy these stocks.

Buy Indraprastha Gas for a price target of Rs 480

According to Sharekhan, growth in existing GAs (of NCR region), ramp-up of new GAs of Rewari, Karnal and Gurugram and three GAs (won under the Xth CGD bidding round) would drive 14% volume CAGR over FY22-24E.

"We highlight here that Indraprastha Gas CNG volume grew strongly by 21% in Q1FY23 as compared to peak pre-pandemic volume in Q3FY20," the brokerage has said.

Indraprastha Gas: At a discount to 5-year average

"We maintain a Buy on Indraprastha Gas with an increased price target of Rs. 480 as we assign higher PE multiple given accommodative policy framework would improve volume/earnings growth visibility. IGL trades at an attractive valuation of 18.6x FY24E EPS, which is at 22% discount to 5-year average PE multiple of 24 times," the brokerage has said.

Government decision to allocate gas to help Indraprastha Gas

The recent government decision to increase gas allocation for CNG and domestic PNG points to a favourable policy framework for CGDs as the space would be key to achieve government's target of 15% share of natural gas in India's energy mix by 2030 versus only 6% currently. "Higher domestic gas allocation of 94% to CGDs is a near-term relief for CGDs and raises hope of more policy measures like capping of domestic gas price at current level. Continued policy support for CGDs would help sustain high volume growth and sustain/improve current margin for IGL. We thus maintain our Buy rating on IGL with a revised price target of Rs. 480," the brokerage has said.

Buy Mahanagar Gas, says Sharekhan

According to Sharekhan, Mahanagar Gas long-term volume growth outlook remains intact led by favourable government policies, which would help keep economics of CNG cars favourable versus petrol cars. "We highlight here that Mahanagar Gas has recently cut CNG price by Rs.6/kg and with this CNG cars are now 44% cheaper in terms of running cost than petrol cars versus to 30% till mid-August 2022. Decent growth in existing Mumbai GA and and ramp-up of Raigad CGD GA (0.5 mmscmd volume potential) would drive 7% volume CAGR over FY22-24E for Mahanagar Gas," the brokerage has said.

Mahanagar Gas: Trading at discount to long-term averages

Accommodative government policies and likely capping of domestic gas price would improve volume growth visibility (supported by widening of pricing gap between CNG versus petrol) and sustained margin recovery for MGL. "We thus increase our price target for Mahanagar Gas to Rs. 980, as we increase our PE multiple given improving policy while maintaining our Buy rating. MGL is the cheapest CGD stock with attractive valuation of 11x FY24E EPS, which is at 27% discount to its 3-year average PE multiple," the brokerage has said.

About the author

Sunil Fernandes, the author of this article has spent 28-years covering business and finance, particularly stock markets. Sunil has worked with Deccan Herald, Hindustan Times, Dalal Street Investment Journal. He has also worked with leading English newspapers and investment magazines in the Middle East.