Buy Mahanagar Gas; target of Rs 1100: Sharekhan

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Sharekhan's research report on Mahanagar Gas

MGL to acquire a 100% stake in Unison Enviro Private Limited (UEPL) for Rs. 531 crore. UEPL is implementing CGD network in Ratnagiri, Latur & Osmanabad in Maharashtra and Chitradurga & Devengere in Karnataka. EV/sales of 6x and EV/BV of 6.4x is expensive compared to valuation of large listed CGDs players but is structurally important for MGL as it provides growth opportunities beyond Mumbai and expands its total GAs to six (versus three currently). Inorganic foray is expected to allay the concern of weak volume growth versus peers and sustained strong volume growth could drive valuation re-rating for MGL (cheapest CGD stock). Ratnagiri GA seems be a strategic fit for MGL, as it is adjoining to its Raigad GA, which could provide synergy benefit of faster ramp-up of Ratnagiri GA.

Outlook

We maintain our Buy on MGL with a revised PT of Rs. 1,100 (the increase reflects rollover of our PE multiple to FY2025E EPS), given inexpensive valuation of 10.7x its FY2025E EPS (at a discount of 29% to three-year average PE of 15x) and expectation of strong earnings recovery, given supportive government policies.

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Mahanagar Gas - 08 -03 - 2023 - khan