Mahanagar Gas Shares Fall As Analysts Have Mixed Views On Unison Deal

Mahanagar Gas has agreed to acquire 100% of Unison Enviro from its existing shareholders.

<div class="paragraphs"><p>(Source: <a href=";utm_medium=referral&amp;utm_content=creditCopyText">Martin Adams</a>/ <a href=";utm_medium=referral&amp;utm_content=creditCopyText">Unsplash</a>)</p></div>
(Source: Martin Adams/ Unsplash)

Shares of Mahanagar Gas Ltd. fell in early trade as brokerages shared mixed commentary on the company's acquisition of Unison Enviro Pvt.

Mahanagar Gas agreed to acquire 100% of Unison Enviro from its existing shareholders, Ashoka Buildcon Ltd., and an investment fund managed by Morgan Stanley India Infrastructure.

The deal will be subject to approval from the Petroleum and Natural Gas Regulatory Board, which is likely around September 2023, according to Nomura. The total consideration of Rs 530 crore will be funded through Mahanagar Gas's internal accruals, it said.

While Nomura revised its target price on the stock and is hopeful of high volume growth, Jefferies said the acquisition will be a drag on earnings over FY24 and FY25.

"The volume potential of Mahanagar Gas appears steep given the low industrialisation and low population density of the acquired geographical areas in light of its execution in Raigad," Jefferies said. Mahanagar sells 0.1 million standard cubic metres of gas per day in Raigad against a potential of 0.6 mmscmd, it said.

The Mahanagar Gas stock fell 0.78% to Rs 989.25 at the time of closing, compared to a 1% decline in the Nifty 50.

Of the 36 analysts tracking the stock, 28 suggest 'buy,' five recommend 'hold,' and three suggest 'sell,' according to Bloomberg data. The return potential of the stock stands at 4.7%.


  • Revised the target price to Rs 1,150 from Rs 1,035 and cited significant potential for volume growth in the medium term, especially post-acquisition.

  • Maintained a 'buy' rating on the stock with an implied 15% return potential.

  • UEPL’s volumes as of FY22 were 0.06 million standard cubic meters of gas per day, although in H1 of FY23, volumes increased to 0.1 mmscmd.

  • Management has guided for capex of Rs 1–1.5 billion on an annual basis over the next eight years to scale up the geographical areas, with target volumes of 1.1 mmscmd.

  • As per MGL, Ebitda margin in H1 of FY23 stood at Rs 7.5 per standard cubic meter. The volume profile of the company’s GAs is broadly similar to that of MGL currently, with 90% of volume coming from compressed natural gas.

  • UEPL currently has 43 operational CNG stations and over 9,400 domestic PNG consumers.

  • The transaction can potentially alleviate a key pain point of MGL’s low volume growth, although execution will be key to adequately capitalizing on the opportunity.


  • Maintains a 'hold' rating on the stock with a target price of Rs 930.

  • With CNG's discount to diesel at historical lows (8% vs. 30% historically) and the freeze on petrol and diesel expected to continue in an election-heavy season, a slow ramp-up in CNG volumes is expected.

  • Expect the acquisition to achieve breakeven beyond FY25, and the dividend payout will likely be unaffected given the strong cash balance.

  • As opposed to the positive narrative of the management, Jefferies' note states that the acquisition adds limited value in the medium term.

  • With 70% of volumes from CNG and its core market witnessing EV policy tailwinds, the company faces high risk from increasing EV adoption.