Shares of Mahanagar Gas declined 2 percent with investors cashing in on the recent gains. At 10:07am, shares of the company traded at Rs 982.10, down 1.5 percent, on the BSE.
Mahanagar Gas has announced the acquisition of city gas distribution company Unison Enviro for Rs 531 crore. The stock had reacted with over 9 percent gain on March 6 and hit a 52-week high of Rs 990, after the announcement of the acquisition. Since then, the scrip has shot up to Rs 996.65 from Rs 906.60.
Even as the buyout has enhanced the long-term growth outlook of Mahanagar Gas, some analysts are wary of the acquisition impacting earnings in the near term.
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Citi that has a ‘buy’ call on Mahanagar Gas shares, believes that the acquisition has the potential to improve the long-term growth outlook of the natural gas distribution company and is now the brokerage firm’s preferred city gas distribution company followed by Indraprastha Gas Ltd.
It has raised its target price on the stock to Rs 1,140.
Jefferies meanwhile said that even as the volume potential from the Unison Enviro acquisition appears steep, it sees the buyout to be a drag on earnings over FY24-25.
“We expect the acquisition to be a drag on earnings over FY24-25 and significant capex is required before reaching breakeven,” Jefferies said. However, it believes dividend payout will likely be unaffected given the strong cash balance.
The foreign brokerage firm has maintained its ‘hold’ rating on the stock with a target price of Rs 930.
Read more | What does the Unison Enviro acquisition mean for Mahanagar Gas?
According to Nomura, the transaction can potentially alleviate a key pain-point of Mahanagar Gas’ low volume growth, albeit execution will be key to adequately capitalise on the opportunity.
“We note that the outlook remains attractive, given imminent notification of Kirit Parekh recommendations, priority allocation for CGDs for HPHT gas and the decline in spot LNG prices,” it said, adding that the stock trades at attractive valuations of 12.9 times FY2024 Price to Earnings with a healthy dividend yield of around 4 percent.
Nomura says ‘buy’ Mahanagar Gas shares while raising target price to Rs 1,150 from Rs 1,035.
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