2.3% Yield: Motilal Oswal Recommends Buy On Maharatna-Company Backed Oil & Gas Stock, 37% Surge Seen
And the dividend paying PSU stock has been in focus since then. Brokerage Motilal Oswal is the latest to recommend buying on MGL.
Trading as Midcap currently, MGL too faced the wrath of bears this week, correcting significantly. However, this creates a buying-on-dips opportunity in MGL as the stock has the potential for a 37% upside going forward.
On BSE, MGL’s share price ended at Rs 1,218.55 apiece, down by 6.5% after market hours of March 13. The stock is currently down by 22.8% from its 52-week high but also up by 34% from its 52-week low of Rs 909.10 apiece.
Hence, there is more room to buy. And Motilal has set a record-high target for MGL.
In its research note, Motilal Oswal said, the market likely believes that the recent CNG price cut by the company is driven by the minister’s statements about CGDs making high EBITDA/scm margins.
Motilal added, “We believe that the current stock price correction is partly an overreaction and partly driven by profit-booking following the strong run-up in the last six months.”
The brokerage believes the current weakness is a good opportunity to buy a franchise with decent volume growth visibility at reasonable valuations.
Recently, Minister of Petroleum and Natural Gas, Hardeep Singh Puri stated that the full benefits of gas sector reforms have not reached the end user and that CGDs are posting strong profits. He also declared the government’s commitment to ensuring the benefits of gas reforms reach end-consumers directly.
On this, according to brokerage, CGD volume growth recently has been weak (even without accounting for EV impact) given the slow infrastructure build-up by companies. Weak volume growth has been the underlying reason for its negative stance on the CGD sector in the last few quarters.
But if oil prices remain above USD 80/bbl, Motilal believes that the government could push CGD players to expand their network more aggressively build more CGD stations and expand pipeline connectivity, accordingly.
Motilal highlighted that MAHGL’s ROE is in line with IGL’s but lower than GUJGA’s. The brokerage acknowledges that MAHGL’s higher EBITDA/scm vs. both IGL/ GUJGA. On a one-year forward P/E basis, MAHGL/IGL/GUJGA are trading at 12.7x/17.3x/26.5x. It added, “After the price cut, CNG price in Mumbai is comparable with price in Delhi. As such, we do not believe that MAHGL’s margin faces significant risk.”
The brokerage is already building an EBITDA margin of INR12.5/scm in FY25/FY26, down from INR13.3/scm in 3QFY24, and as such it added, “we do not see any significant earnings downside for the company. 4QFY24 earnings should also see the benefit of lower spot LNG prices, which have corrected from an average of USD15.8/mmBtu in 3QFY24 to INR8.3/mmBtu currently.”
On the valuation, Motilal’s note said, “We expect a 4% CAGR in volume over FY23-26, driven by multiple initiatives implemented by the company, such as partnering with OEMs to drive conversions of commercial CNG vehicles and providing guaranteed price discounts to new I/C- PNG customers.”
Finally, Motilal’s note said, “We maintain our BUY rating and TP of INR1,665 per share, valuing it at 14x Dec’25E EPS. The stock currently trades at 11.7x FY25E EPS of INR114.9, and our TP implies a multiple of 14.5x FY25E EPS. We believe MAHGL’s valuations should continue to converge closer to IGL’s, given a largely similar volume growth profile and lower EV risk.”
The latest target price implies a potential of 36.63% from the current market price.
Mahanagar Gas Limited, (MGL) one of India’s leading Natural Gas Distribution Companies was incorporated on 8th May 1995. GAIL (India) Limited (Maharatna Company of Govt. of India) is the promoter of MGL.
MGL is also among dividend-paying natural gas stocks. As per Trendlyne data, since September 2016, MGL has delivered 17 dividends. In the last 12 months, the dividend payout is Rs 28 per share. Currently, it has a dividend yield of 2.29%.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
