Stock Of The Day: MGL Needs More Than Morgan Stanley's New Target To Exit 'Bearish' Zone

New buy rating from Morgan Stanley with a 25% upside potential might fall short of pulling Mahanagar Gas Ltd. from the 'bearish' territory it landed in since falling 45% from its 52-week high.

The counter rose over 4% in early trade on Tuesday after the global brokerage initiated coverage with 'overweight' and a target price of Rs 1,606 per share. The target price indicates an upside of 25% from the previous close.

While the stock trades below the long-term sentiment gauge — 200-day moving average — they currently test the 14-day simple moving average and the 21-day exponential moving average.

Immediate support for the scrip will be around the Rs 1,300 level, which is also 2 standard deviations above the 14-day moving average. A breakout of this range could send the stock higher in the medium term. On the downside, the Rs 1,200 level could act as immediate support for the stock.

Mahanagar Gas' stock rose as much as 4.5% during the day to Rs 1,283.2 apiece on the NSE, while the benchmark Nifty 50 advanced as much as 0.61% on Tuesday. The total traded volume so far in the day stood at 3.4 times its 30-day average. The relative strength index was at 51.

Fifteen out of the 33 analysts tracking the company have a 'buy' rating on the stock, six suggest a 'hold' and 12 have a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 16%.

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".

Mumbai, with its growing population of over 24 million residents and its status as India's financial hub, presents a vast opportunity for MGL, it said.

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.

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.