Shares of Mahanagar Gas Ltd (MGL) have risen three percent on March 6, hitting a 52-week high of Rs 938.50, after the natural gas distribution company announced the acquisition of city gas distribution company Unison Enviro Private Limited (UEPL) for Rs 531 crore.
At 9:18 am, shares of MGL were trading 3.1 percent higher at Rs 935 on the BSE.
The transaction-MGL’s first acquisition- is not cheap but is strategically positive and could improve the growth outlook of the natural gas distribution company, broking and research firm Citi said in a note to clients
While headline valuation at 6.4 times trailing Price to Book appears high, Citi views the deal positively. The acquired city gas distributor is still at an early growth stage but this buy out could be a good use of cash by improving MGL’s growth outlook, Citi said.
MGL’s strong established presence in Maharashtra could lend it geographical synergies and could also change perception around the company’s perceived lack of growth aggression, it said.
Citi has a ‘buy’ rating on shares of MGL with a target price of Rs 1,030.
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“Mahanagar Gas Limited (MGL or the Company) has signed a Share Purchase Agreement (SPA) with Unison Enviro Private Limited (UEPL) and existing shareholders of UEPL (Ashoka Buildcon Ltd. and an investment fund managed by Morgan Stanley India Infrastructure) for the acquisition of 100 percent stake in UEPL,” MGL said in an exchange filing.
This acquisition will enable MGL to expand to newer geographical areas in Maharashtra including Ratnagiri, Latur and Osmanabad, and in Karnataka such as Chitradurga & Davanagere, thereby providing new avenues for the long-term growth of the natural gas distribution company. It will also help extend the footprint of MGL in terms of scaling up its future business development activities across a larger network and customer base, the company said in a filing.
With this acquisition, MGL has made its first inorganic foray, highlighted Citi. The transaction is not cheap but is strategically positive and could improve the growth outlook of the natural gas distribution company, it added.
Meanwhile, UEPL is a subsidiary of Ashoka Buildcon, and has been granted authorisation from Petroleum and Natural Gas Regulatory Board to develop City Gas Distribution business in Ratnagiri, Latur, Osmanabad and Chitradurga & Davanagere. The arm is engaged in supplying natural gas to domestic, commercial, industrial and transport sectors.
Reacting to the acquisition news, shares of the highway developer were trading at Rs 78.29, up 2.9 percent, on the BSE.
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