Stock To Buy, Hold: Anand Rathi Picks 3 Midcap Stocks From CGD Sector, Maintains Positive Outlook

Leading brokerage firm Anand Rathi is positive on 3 leading city gas distribution (CGD) stocks, suggesting "Buy" on 2 stocks and "Hold" on 1 stock. These stocks are Indraprastha Gas Limited, Mahanagar Gas Limited, and Gujarat Gas Limited. The brokerage initiates coverage on CGD companies with a positive take.

According to the brokerage, the Indian CGD sector has been a key beneficiary of government support via policy changes, unlike for upstream, midstream and downstream companies. The government aims to increase the share of natural gas in energy consumption from ~7% to 15% by 2030. "We expect gas prices to be capped via the Administered Price Mechanism, which should help CGD companies reduce prices for end consumers, maintain margins and achieve good volume growth. Today, volume growth is constrained by less expensive gas," the brokerage has said.

Indraprastha Gas Limited (IGL) - Buy

Indraprastha Gas Limited (IGL) is in the business of city gas distribution in the National Capital Territory of Delhi. IGL took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited. It is a midcap CGD company having a market capitalisation of Rs 30,226.03 crore.

Anand Rathi placed a buy on IGL's stock with a target price of Rs 570/share. The brokerage claims a potential gain of up to 33% if you buy the stock today at the current market price. On NSE, the stock's current market price is Rs 430/share, trading 2.86% down from its previous close. The stock in the last 1 month surged by 2.42%, whereas, in the last 3 months, it surged by 3.68%. In 1 year it fell by 13.07%. However, in 3 and 5 years, it gave 3.04% negative returns and 35.64% positive returns, respectively.

The brokerage has said, "We prefer the former to the other two CGD companies given its good growth prospects, cash flow and balance sheet. We forecast an 8% volume CAGR over FY23-25, supported by contributions from new regions while protecting spreads to support greater profitability through passing on higher gas costs. We expect FY23, FY24 and FY25 spreads of respectively of Rs/scm of 7.5, 7.7 and 7.8. The stock trades at 17.1x/15.6x FY24e/FY25e PER. We believe it to be attractive and recommend a BUY, with a target price of Rs570."

 

Mahanagar Gas Limited (MAHGL) - Buy

MAHGL is one of India's leading Natural Gas Distribution Companies presently supplying natural gas in the city of Mumbai including adjoining areas and the Raigad District in the state of Maharashtra. It has a market capitalisation of Rs 8,875.68 crore, it is a mid cap CGD company.

Anand Rathi has initiates a buy on MAHGL 's stock for a target price of Rs 1,090/share. According to the brokerage's given target price, if you buy the stock today at the current market price, the investments could fetch you a potential gain of up to 23%. On NSE, the stock is currently trading at Rs 891.50/share, 0.81% down from its previous close. The stock in a week has given 2.37% positive returns, and in 3 months, it gave 4.89% positive returns. In 1 year it gave 0.19% positive returns. However, 1 3 and 5 years, it gave 14.28% negative returns and 19.15% negative returns, respectively.

The brokerage has said, "We believe Mahanagar Gas is an attractive risk-reward proposition due to its strong margins, cash flow and balance sheet. We forecast a 5.1% volume CAGR over FY23-25, supported by strong CNG support and greater profitability through passing on higher gas costs. We expect FY23, FY24 and FY25 spreads of respectively of Rs/scm 9.3, 9.5 and 10. The stock trades at 9.7x/8.8x FY24e/FY25e PER. We believe it to be attractive and recommend a BUY, with a target price of Rs1,090."

 

Gujarat Gas Limited (GUJGA) - Hold

GUJGA is a Midcap CGD company having a market capitalisation of Rs 36,071.64 crore. It is one of India's largest City Gas Distribution (CGD) Companies in terms of sales volume operating in 44 districts in 6 states of Gujarat, Maharashtra, Haryana, Rajasthan, Punjab & Madhya Pradesh and 1 Union territory of Dadra & Nagar Haveli.

The brokerage recommends HOLD on the stock with a target price of Rs 550/share. According to the given target price, if you hold the stock, you can get decent returns of around 6%. On NSE, the stock is currently trading at Rs 523.20/share, 1.62% down from its previous close. It is a multibagger stock with 215.01% returns in 5 years. It has also given 129.52% multibagger returns in 3 years. However, in the last 1 year, it fell by 17.67%.

The brokerage has said, "We recommend a HOLD on Gujarat Gas on valuation though it has good growth prospects, better margins, strong cash flows and balance sheet. We forecast a 16% volume CAGR over FY23-25 supported by the higher-margin CNG segment and added contribution from new regions, supporting healthy profitability growth with spreads protected via passing on higher gas costs. We forecast FY23, FY24 and FY25 spreads of respectively of Rs/scm 7.7, 6.8 and 6.9. The stock trades at 24.3x/21x FY24e/FY25e PER. We believe it will not fetch past multiples and assign a multiple based on expected growth. We value the stock on PER basis, assigning a 22x multiple, believing it to be fairly valued and recommend a HOLD, with a target price of Rs550."

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.