Motilal Oswal is bullish on Mahanagar Gas recommended buy rating on the stock with a target price of Rs 1665 in its research report dated January 24, 2024.
Motilal Oswal’s research report on Mahanagar Gas
Mahanagar Gas Ltd.’s (MAHGL) EBITDA surged by 75% YoY to INR4.5b in 3QFY24, primarily fueled by a 63% YoY increase in EBITDA per scm to INR13.3. Volumes experienced an 8% YoY uptick to 3.7mmscmd driven by CNG and I/C-PNG segments. CNG expansion was spurred by a rise in vehicle conversions to 22.4k vehicles in 3Q from approximately 20k in 2Q and about 15k in 1Q. The ‘CNG Mahotsav’ initiative launched by the company in 3Q resulted in a 30% increase in CNG passenger vehicle conversions. MAHGL allocated INR100m in 3Q towards the initiative and plans to allocate INR200m in 4Q. I/C PNG growth was propelled by robust consumption among new clientele. The company offers a 10% discount on gas prices compared to alternative fuels for the first three years to new customers in the GA3 region. Similarly, in GA2, new customers with high gas consumption enjoy the same benefit. As per management, CNG currently boasts a 50% price advantage over petrol and is 18-19% cheaper than diesel based on calorific value. MAHGL anticipates minimal impact on CNG volumes from the INR5-10/lit reduction in petrol prices. However, a cut in diesel prices may influence commercial vehicle conversions, prompting the company to consider price adjustments in case of significant volume declines.
Outlook
The stock trades at 11.7x FY25E EPS of INR114.9. We value it at 14x Dec’25E EPS to arrive at a TP of INR1,665 and maintain BUY rating on the stock. We continue to prefer MAHGL over IGL owing to its 30% cheaper valuation (on FY26E PE basis) with largely similar growth profile in the medium term and relatively lower EV risk.
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