Mahanagar Gas Shares Can Generate 20% Returns

Broking firm, Geojit has set a target price of Rs 1,180 on the stock of Mahanagar Gas, implying a potential up tick of nearly 20 per cent from current levels.

Mahanagar Gas is the sole distributer of natural gas in Mumbai. The Company provides gas to customers such as hospitals, nursing homes, hotels, flight kitchens, and restaurants.

"Considering government's expansion plan in CNG sector and company's growth in Compressed Gas Distribution (CGD), we are positive on company's outlook, and reiterate our BUY rating on the stock with a revised target price of Rs. 1,180 based on 14x FY22E EPS," Geojit has said in its research report.

Financials

Mahanagar Gas saw revenue decline 66.6% YoY in Q1FY21 due to lower CNG volumes (-77.8% YoY) as a result of extended lockdown. EBITDA fell 71.1% year-on-year with margin contracting 4.5pps to 28.8% due to higher fixed costs from delayed pipeline construction activities and labor availability issues. Net Profit reduced 73.4% YoY to Rs. 45cr, partly offset by lower tax rates.

Valuation

According to the Geojit report, As per IBEF, Natural gas consumption is expected to grow 4.3% CAGR to 143mntby 2040 against crude oil's CAGR of 3.6%.

"We expect the current volume growth (65% in August) to pick up since the commercial activities and movement of vehicles have gradually revived. Owing to regulatory push towards relatively cleaner fuels like natural gas, we remain optimistic on the stock and reiterate our BUY rating on the stock with a revised target price of Rs. 1,180based on 14xFY22E Adj EPS," the brokerage firm has stated.