Buy Mahanagar Gas; target of Rs 1650: Emkay Global Financial

Emkay Global Financial's research report on Mahanagar Gas

However, we see this changing for MGL, given Mgmt. focus on stable pricing to boost CNG demand and keeping reasonable margins, acquisition of Unison Enviro improving LT prospects, macros & gas sourcing staying comfortable, and a strong balance sheet. With vol. growth outlook of the peer-set turning volatile and capturing EV risks adequately, MGL—which has logged over 4% volume CAGR (vs pre-Covid) in 9MFY24 (8% growth YoY in Q3FY24)—should see a rerating, as the 6% volume CAGR guidance seems achievable and with earnings now driven by core volume. Our target P/E is ~13x FY26E consol. EPS.

Outlook

We initiate coverage on Mahanagar Gas (MGL) with a BUY and DCF-based TP of Rs1,650. MGL has been trading at lower valuations vs larger peers, due to perceived long-term growth issues in MMR and earnings, mostly fueled by margins.