Mahanagar Gas stock soars over 7% as Jefferies boosts

An upgrade from brokerage firm Jefferies India from ‘neutral’ to ‘buy,’ the stock witnessed a positive momentum, driven by robust earnings visibility.

Today, the shares of Mahanagar Gas Limited soared 7.80%. Furthermore, the scrip witnessed a massive spurt in volume by more than 10.22 times. The company’s current market capitalisation is Rs 10,957.42 crore.

On October 3, following an upgrade from brokerage firm Jefferies India from ‘neutral’ to ‘buy,’ the stock witnessed a positive momentum, driven by robust earnings visibility.

Jefferies offers specialized wealth management solutions crafted to cater to the distinct requirements of high net worth individuals, their families, businesses, private equity and venture funds, as well as small institutions.

Mahanagar Gas has recently ventured into strategic partnerships with automobile manufacturers, introducing an enticing offer for car buyers: free fuel cards worth Rs 20,000. This innovative move extends to commercial vehicle purchasers as well, with varying amounts of complimentary fuel (Rs 0.2m/Rs 0.35m/Rs 0.5m) tailored to small, medium, and large commercial vehicles. The primary objective behind these initiatives is to accelerate the adoption of Compressed Natural Gas (CNG) among Light Commercial Vehicle (LCV) fleet operators, a move that Mahanagar Gas anticipates will spur growth.

Furthermore, a noteworthy development is underway as 500 diesel buses operated by the Maharashtra State Road Transport Corporation (MSRTC) in Mahanagar Gas’s service areas are undergoing retrofitting with CNG kits. These progressive endeavors collectively aim to propel volume growth to an impressive 7-8 percent.

In an additional strategic move, the company has secured 0.2 million metric standard cubic meters per day (mmscmd) of high-pressure high-temperature gas, with potential for more due to City Gas Distribution’s (CGDs) high allocation priority. The forthcoming fiscal years, FY24-25, are anticipated to witness Mahanagar Gas benefiting from additional volumes contributed by Reliance Industries Limited (RIL) and Oil and Natural Gas Corporation (ONGC). Jefferies, a financial expert, foresees this expansion leading to robust profit margins for Mahanagar Gas, consequently reducing its reliance on Liquefied Natural Gas (LNG).

In a bullish scenario, Jefferies has set an optimistic price target of Rs 1,400 per share, reflecting a substantial 39 percent increase from the current market price. This upbeat projection is based on Mahanagar Gas’s ongoing expansion of its Compressed Natural Gas (CNG) stations and its remarkable CNG volume growth, driven by a significant upsurge in the number of vehicles opting for CNG fuel.

Jefferies also highlights that the company’s margin expansion has exceeded their initial expectations. The strong execution of margins plays a pivotal role in driving earnings per share (EPS) growth, even in the face of infrastructure constraints in Mumbai.

Moreover, Jefferies anticipates that margin expansion will serve as a key catalyst for Mahanagar Gas, given its attractive valuation in comparison to industry peers and a promising cash flow profile. As per the report, Mahanagar Gas stands out favorably among City Gas Distribution (CGD) stocks in terms of valuation.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.