Buy The Stock Of Mahanagar Gas, Shares Can Give Good Returns, Says Top Brokerage

Broking firm Sharekhan has recommended buying the stock of Mahanagar Gas for good returns. The firm has set a price target of Rs 1010 on the stock. Here are some of the reasons for buying the stock of Mahanagar Gas.

Buy Mahanagar Gas with a revised price target of Rs. 1,010, says Sharekhan

According the brokerage firm, accommodative government policies and likely cut in APM gas price (Kirit Parikh committee already set up to review domestic gas pricing formula) or capping of domestic gas price would improve volume growth visibility and support sustained margin recovery for CGDs.

"We expect Mahangar Gas PAT to clock 13% PAT CAGR over FY22-25E, along with healthy RoE/RoCE of 19%/24%. MGL is the cheapest CGD stock with attractive valuation of 11x FY24E EPS, which is at a 27% discount to its 3-year average PE multiple. Hence, we maintain our Buy rating on Mahanagar Gas with a revised price target of Rs. 1,010," the brokerage has said.

 

Weak Q2 performance

According to Sharekhan, earnings missed estimates as margin disappoints Operating profit of Rs. 253 crore (down 16.2% y-o-y; down 11.5% q-o-q) was 19% below our estimate of Rs313 crore primarily due to lower-than-expected EBITDA margin of Rs7.9/SCM (down 12.7% q-o-q and 19% below our estimate of Rs9.8/scm). Gas sales volume of 3.5 mmscmd (up 10.7% y-o-y; flat q-o-q) was in-line with our estimates. CNG/D-PNG volume was flat q-o-q at 2.5 mmscmd/0.5 mmscmd while I/C-PNG volume was up 2% q-o-q to 0.4 mmscmd. PAT at Rs164 crore (down 19.7% y-o-y; down 11.5% q-o-q) was 21% below our estimate of Rs208 crore due to sharp miss in margin.

APM gas allocation and price

According to Sharekhan as per a concall highlights, the company is sourcing 7-10% of the gas requirement for the priority sector (CNG and D-PNG) through spot LNG. UBP of $8.9/10.5 per mmbtu in July/Mid-August. From August 16, 2022, gas pooling system was discontinued, and gas cost was at $6.26/mmbtu (a combination of APM, CBM and HPHT gas) and at $8.75/mmbtu currently. The company is waiting for the Kirit Parekh Committee report on gas pricing and is hopeful that the outcome will be favourable for GCDS

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