Stock To Buy: A Stock Which Is Near 52 Week Low, Monopoly Business & Low P/E

The shares of Mahanagar Gas have slumped to near 52-week low and is trading at Rs 918 as against the 52 week high price of Rs 1284. Let's tell you why the stock could be a good stock to buy at the current levels.

Piped natural gas and CNG buses to drive growth

As the scale of piped natural gas increases, there is a big scope for Mahanagar Gas to boost its volumes going ahead. Even an increase in the CNG buses would boost volumes going ahead.

According to a Prabhudas Lilladher report, 2,500 commercial vehicles converted to CNG in Q2; and Mahanagar Gas plans on offering schemes to incentivize this growth.

According to the brokerage gradual opening up of economic activities is expected to drive volumes. "We believe introduction of new CNG buses by state government, new three wheelers along with geographical expansion to Raigad and Karjat will support volumes. Also, government's push towards piped natural gas domestic connections will add volume traction," the brokerage said in last report on Mahanagar Gas.

Low on valuations

This is one stock that is low on p/e multiples, which makes the stock attractive to buy. For the last two quarters the company has consistently reported an EPS of around Rs 20.66 and Rs 20.88. This was despite an increase in gas prices. On a conservative basis even if the company does Rs 81 as EPS for FY 2021-22, the stock at 11.20 is reasonable for a company with expansion plans and monopoly nature of business. The dividend yield on the stock is also a decent 2.52% at the current market price.

Brokerages up their target on the stock with a buy tag

Motilal Oswal and Prabhudas Lilladher are both optimistic on the price performance of the stock and have set higher targets.

"The stock trades at 12x FY23E EPS of Rs 83, and upon valuing it at 14 times Dec'23E EPS, we arrive at a target price of Rs 1,200. Maintain Buy," broking firm Motilal Oswal has said.

Prabhudas Lilladher remains even more optimistic on the stock of the company with a target price of Rs 1345, which is nearly 40% higher than the current levels.

"Mahanagar Gas remains a play on increased gas usage from rising vehicle and piped natural gas penetration and we like the business, given its dominating share in growing markets of Mumbai and suburbs. Reiterate 'BUY' with a target price of Rs 1,345 (Rs 1,370 earlier)," the brokerage has said.

Rising natural gas remains the only challenge

Rising natural gas would continue to be a problem for the company, but, compressed natural gas prices remain way lower than petrol prices. Apart from that for the domestic PNG business the company does have an option for a marginal hike in prices to offset increasing international natural gas prices.

The stock of Mahanagar Gas was last trading at Rs 916 on the NSE.

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.