Stock To Buy: Monopoly Gas Distribution Stock That Has Dropped To 52-Week Low

Markets have once again crossed the 58,000 points mark after seeing some selling pressure in the last 15-days of December. Despite the short-term rally that we have seen we believe that the markets in 2022 are unlikely to give stupendous returns. Here is a stock that has dropped to 52-week lows and has the potential to rally.

Stock to buy: Mahanagar Gas

The company is the sole authorized distributor of CNG and PNG in Mumbai, its adjoining areas and Raigarh with more than 25-years consistent growth. The company has a large shareholding from GAIL of nearly 30%, while 10% is held by the Government of Maharashtra. The company as on June 30 data has supplied CNG to about 0.80mn vehicles and PNG connectivity to approximately 1.63 mn domestic households.

A great play on CNG and piped natural gas

We believe that the demand for piped natural gas would continue to surge and so also CNG supplied by the company. Piped natural gas is much cheaper when compared to LPG and this is likely to play out in the future as well. Subsidized and Non-subsidized LPG cylinders price is same at present, Consumers are incentivized to purchase PNG due to significant savings. On the other hand CNG vehicles typically enjoy higher fuel efficiency, which should keep demand robust.

Strong on fundamentals

The company has reported a good and consistent profitability for the first two quarters of FY 2021-22. For the first quarter the company reported an EPS of nearly Rs 20.66, while for the second quarter of 2021-22 ending Sept 20, 2022, the company reported an EPS of Rs 20.68. The stock is thus trading at just 10 times one year forward earnings, if we annualize the EPS based on the first two quarters. The stock had hit a high of Rs 1244, but, has fallen to levels of Rs 872 since. It is also notr too far away from its 52-week low. As demand for piped gas for domestic consumption surges and also CNG for vehicles, due to its clean energy status, we expect the company to continue to report good numbers. Buy the stock of Mahanagar Gas, if you are a long term investor.

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.