Sharekhan is bullish on Mahanagar Gas has recommended buy rating on the stock with a target price of Rs 1380 in its research report dated August 10, 2020.
Sharekhan's research repor on Mahanagar Gas
Q1FY21 operating profit of Rs. 80 crore (down 71% y-o-y) substantially lagged estimates due to weaker-than-expected gas sales volume of 1.1mmscmd (down 62.5% y-o-y) and margin of Rs. 7.9/scm (down 23% y-o-y). Earnings to recover sharply over FY22E-FY23E as gas sales volumes likely to normalise (recovered to 65% of pre-COVID-19 level vs. 38% in Q1FY21) and margins rise (low gas cost, better operating leverage and high CNG mix). Cheapest CGD stock with attractive valuation of 11.3x FY22E EPS (discount of 28% to its historical PE and 49% to IGL). Valuation gap with peers to narrow on expected revival in volumes, superior margin and FCF yield of 7%.
We retain a Buy on MGL with unchanged PT of Rs. 1,380 given attractive valuation of 11.3x FY22E EPS and potential earnings recovery in FY2022E as volumes and margin would normalise with easing down of lockdown.
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