Target: ₹1,210

CMP: ₹1,073.80.

We expect the implementation of Kirit Parikh Committee recommendations from April 2023 and a decline in input gas costs to improve Mahanagar Gas’ volume growth.

Additionally, with the rise in crude oil prices sequentially, the risk of CNG price discount to petrol and diesel prices narrowing has declined. The company’s acquisition of Unison Enviro’s (UEPL) three geographical areas (GAs) should also add to its overall volume growth.

MGL reported the highest-ever per-unit EBITDA margins of ₹16.8/scm in Q1FY24, mainly driven by a reduction in input gas costs and higher price of alternate fuel in the industrial segment. With a decline in Administered Pricing Mechanism (APM) gas prices and a combination of favourable gas sourcing portfolios, we believe there is enough room for MGL to cut its realisations to focus on volume growth while maintaining its peer-leading EBITDA margins.

At the current price, MGL’s valuation at 9.8x Sep-24E EPS, a 24 per cent discount to its five-year average multiple of 12.9x, remains attractive and provides favourable risk-reward as CMP implies only 2.5 per cent volume growth.

We, therefore, upgrade our recommendation on MGL to a BUY with a target price of ₹1,210.