International broking house Morgan Stanley initiated coverage on city gas distribution player Mahanagar Gas Ltd (MGL) with an 'overweight' rating. The brokerage also issued a target price of Rs 1,606, which implies a 31 percent upside from the previous session's closing price.
The firm sees natural gas as the fuel of the future for Mumbai, a city with ever-growing energy and travel needs. MGL is at the forefront of this shift, which Morgan Stanley calls a 'Tesla-like moment' for gas adoption in the city.
The global gas market is expected to stay balanced in 2025 but may become oversupplied by 2027. Around 20 percent of MGL’s gas supply is linked to LNG, and while margins might tighten, Morgan Stanley believes the company’s strong volume growth will drive its market re-rating.
At 10.30 am, shares of MGL were trading higher by four percent at Rs 1,276 per share on the NSE.
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Shares of CGDs have been buzzing over the past two months. In November, the central government cut the the Administered Price Mechanism (APM) allocation to CGD players by 20 percent for the second month in a row.
A reduced allocation in the APM means that the Centre has cut the supply of low-priced natural gas from old fields to city gas retailers. As a result, the CGDs will have to look for alternative options to bridge the gap in the input gas, such as New Well Gas or spot LNG, which are more expensive.
Following the news, the stocks of these firms plunged sharply, falling over 40 percent from their 52-week highs. However, the counters have staged a smart rebound on the bourses over the past month. IGL shares have risen 24 percent during the time period, while MGL and Gujarat Gas have gained 13 percent and 10 percent, respectively.
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