Buy Mahanagar Gas; target of Rs 1700: Motilal Oswal

Motilal Oswal's research report on Mahanagar Gas

Mahanagar Gas (MAHGL)’s 1QFY26 adj. EBITDA margin of INR9.7/scm was below our est. of INR10.6/scm (reported EBITDA: INR12.9/scm). Total volumes were in line with our estimate at 4.2mmscmd (up 10% YoY). On a QoQ basis, adj. EBITDA margin expanded by INR1.3/scm (lower than our est. of INR2.2/scm growth), as adj. realization improved INR0.6/scm and opex decreased INR0.7/scm. Gas cost remained flat QoQ at INR32.1/scm. MAHGL reported a soft 7.5% YoY growth in CNG volumes, led by lower CNG vehicle additions in 1Q and a sequential decline in BEST bus volumes. Further, the 7% QoQ decline in CNG APM gas allocation offset the gains from higher New Well (NW) gas allocation and the benefit of lower-priced Henry Hub-linked gas (with HH index down 23% QoQ in 1Q), leading to a broadly flat overall gas cost on a sequential basis.

Outlook

The stock trades at 13.2x FY27E EPS of INR111.9. We value it at 15x FY27E EPS to arrive at our TP of INR1,700. Reiterate BUY.