Buy Mahanagar Gas; target of Rs 2,140: ICICI Securities

BUY

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26 Aug, 2025 12:21

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ICICI Securitie's research report on Mahanagar Gas

Volume of 3.86mmscmd (vs I-Sec 3.7mmscmd) was up 13.1% YoY/+3% QoQ, second highest YoY growth in 8 quarters. CNG volume of 2.77mmscmd (up 12/4% YoY/QoQ), domestic volume of 0.55mmscmd (+10% YoY/+3% QoQ) and I/C volume of 0.54mmscmd (+24/-2% YoY/QoQ) all reflected improved YoY growth momentum in Q1FY25. What has been encouraging in last two quarters is the return of momentum in CNG bus additions by MSRTC and even BEST (90/59 buses added, respectively, in Q1; plan to add (together) 200- 300buses in the next 1-2 years). With >20.8k vehicle conversions overall (vs 19-20k earlier), stronger price competitiveness vs alternate fuels, more aggressive CNG infra (45-50 stations p.a. vs 20-25 earlier), we now factor in 7.9% average volume growth for MGL over FY25-27E, sharply higher than our 6.5-7% estimate earlier to account for better operational environment.

Outlook

Mahanagar Gas (MGL) has reported Q1FY25 EBITDA/PAT of INR 4.2/2.85bn (+6/+7% QoQ; -20/-23% YoY), well ahead of I-Sec’s estimates of INR 3.9bn/2.6bn, with 13.1% YoY jump in volume and 1% QoQ increase in EBITDA/scm. Management commentary on volume growth of >7% is well ahead of last 5 years’ growth of 4.1%. Additionally, moderate LNG prices and price hike in Jul’24 may compensate for falling priority gas allocation (down to 68-69% now vs >80% YoY). Going forward, improved run-rate of vehicle conversions, moderate LNG costs, Unison volume ramp-up post completion of acquisition and diversification efforts into LNG retail augur well for long-term prospects. Despite 23% rise in the stock price in past one month, it still trades at a steep discount to peers. Reiterate BUY.

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