Mahanagar Gas Gets 'Overweight' Rating From Morgan Stanley As It Sees 'Tesla-Like Moment' For Gas Adoption

Mahanagar Gas Ltd. has garnered a positive outlook from Morgan Stanley, which initiated coverage with an "Overweight" rating, citing the company’s strong growth potential in Mumbai's rapidly expanding natural gas market. Morgan Stanley expects MGL to play a crucial role in Mumbai’s energy transition as the city increasingly turns to natural gas as a cleaner fuel alternative. The brokerage noted that for both Mumbai and MGL it is 'Tesla-Like Moment'.

The brokerage noted that Mumbai, with its growing population of over 24 million residents and its status as India's financial hub, presents a vast opportunity for MGL. The city's residents, particularly commuters, are adopting natural gas for transportation, with private car and ride-hailing services leading the shift away from public transport. Morgan Stanley projects that MGL’s sales volume will grow twice as fast in the past decade, supported by a 40% expansion in its gas infrastructure.

MGL’s expansion is seen as key to addressing Mumbai’s transport needs, as the city’s vehicle population has nearly tripled since 2010 and is expected to grow by 17% more by 2030. The brokerage estimates that over 125 billion miles are driven annually in the region, providing MGL with a significant untapped market for compressed natural gas (CNG) adoption.

In addition to its infrastructure expansion, MGL’s strategy to offer cash incentives for converting heavy vehicles to CNG is expected to further accelerate growth, contributing to strong long-term cash flows. Despite potential challenges from global gas price fluctuations and competition from public transport, Morgan Stanley remains optimistic about MGL’s prospects, projecting substantial upside potential.

The firm set a target price for MGL, indicating that the stock could see a 25% re-rating as demand for natural gas in Mumbai continues to rise, with long-term cash flow growth secured through increased CNG adoption and network expansion.

However, risks such as slower CNG demand and higher LNG costs could weigh on the company’s growth trajectory.