Jefferies Upgrades Mahanagar Gas Stock to ‘Buy,’ Predicts 31% Rise

Jefferies Upgrades Mahanagar Gas Stock to 'Buy,' Predicts 31% Rise

VoM News Desk | October 3, 2023 | 04:00 PM IST | Breaking News | Follow on Google News

Jefferies Upgrades Mahanagar Gas Stock to ‘Buy,’ Predicts 31% Rise

Jefferies Upgrades Mahanagar Gas Stock to ‘Buy,’ Predicts 31% Rise

Global brokerage firm Jefferies has upgraded its rating for Mahanagar Gas Ltd’s stock from ‘hold’ to ‘buy,’ triggering an over 8% surge in the company’s share price. Jefferies’ forecast anticipates a substantial 31% increase from the stock’s closing price of ₹1,010.35 on September 28.

Revised Price Target

The revised price target for Mahanagar Gas now stands at ₹1,320, marking a significant upward revision from the previous ₹1,100 figure. Jefferies’ decision is rooted in enhanced earnings visibility and a favorable risk-reward profile. The stock has displayed indications of a breakout in both price and trading volume, indicating heightened market activity.

New Collaborations and Cost Savings

Mahanagar Gas has recently forged partnerships with car manufacturers to offer free fuel cards valued at ₹20,000 to car buyers. They are also extending varying amounts of free fuel to small, medium, and large commercial vehicle buyers. These initiatives aim to boost the adoption of Compressed Natural Gas (CNG) among Light Commercial Vehicle (LCV) fleet operators, fostering optimism for growth. Additionally, 500 diesel buses from the Maharashtra State Road Transport Corporation (MSRTC) operating within MGL’s gas service areas are undergoing retrofitting with CNG kits. These efforts are expected to drive volume growth to 7-8 percent.

Anticipated Profit Margin Expansion

Mahanagar Gas has secured 0.2 million metric standard cubic meters per day (mmscmd) of high-pressure, high-temperature gas and has the potential to acquire more due to its high allocation priority in City Gas Distribution (CGD). With additional volumes expected from Reliance Industries (RIL) and Oil and Natural Gas Corporation (ONGC) in FY24-25, Jefferies predicts robust profit margins for Mahanagar Gas, with reduced reliance on Liquefied Natural Gas (LNG). The company’s recent Original Equipment Manufacturer (OEM) collaborations should support volume growth. Lower High-Pressure High-Temperature (HPHT) gas costs and a top allocation priority provide strong margin visibility for the latter half of FY24-FY25.

Favorable Risk-Reward Profile

Jefferies India stated, “Risk-reward is favorable with valuations at 10x forward Price-to-Earnings (PE), 1 standard deviation below the last five-year average, and a healthy dividend yield of 4 percent.” In a bullish scenario, Jefferies predicts a price target of ₹1,400 per share, representing a 39% increase from the current market price. Mahanagar Gas is expanding its CNG stations and is experiencing significant CNG volume growth, despite infrastructure constraints in Mumbai, surpassing Jefferies’ expectations for margin expansion.

VoM News Desk

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