Mahanagar Gas Upgraded To 'Buy' As It Offers Better Growth At Attractive Valuation, Says Nomura
The report highlighted MGL's strong expected volume growth and limited exposure to the volatile industrial and commercial segments as key factors for the upgrade.
Nomura has upgraded Mahanagar Gas Ltd. to a 'buy' rating from 'neutral', citing better growth prospects and attractive valuation compared to its peers. The target price has been set at Rs 1,680 per share.
The report highlighted MGL's strong expected volume growth and limited exposure to the volatile industrial and commercial segments as key factors for the upgrade. "MGL is better placed than Indraprastha Gas Ltd. on EV-related regulatory challenges," the report states.
The ongoing High Court-monitored committee on EV adoption in Maharashtra, which includes representation from MGL, has expressed optimism that CNG could emerge as a potential winner under the new Maharashtra EV policy.
The report also addresses the challenges posed by the recent 18-20% reduction in gas allocation under the Administered Price Mechanism, announced in April 2025.
This reduction has resulted in a significant supply shortfall of cheap APM gas for priority sectors such as CNG and domestic PNG. IGL has been the most affected due to its high exposure to CNG, which constitutes approximately 73% of its total sales.
However, both IGL and MGL have managed to mitigate this challenge by implementing price hikes in excess of 2% in both CNG and domestic PNG segments.
Gujarat Gas Ltd. has been the least impacted by the APM allocation cut due to its relatively low exposure to priority sectors. However, GGL faces challenges in the industrial and commercial segment from low-cost propane gas.
Additionally, GGL has limited room to grow its CNG business, as adoption is already at 31% of new car sales in Gujarat, compared to 22% each in Delhi and Maharashtra.
State policies promoting electric vehicle adoption continue to pressure CNG growth. Both Delhi and Mumbai are planning to roll out aggressive policy incentives to increase EV adoption in response to rising air pollution. "With Delhi already banning 10+ year-old diesel vehicles a decade ago, the next policy action could be targeted at CNG vehicles," Nomura noted.
However, Mumbai's relatively better air quality index levels might shift the EV policy focus more towards liquid fuels rather than CNG, potentially benefiting both CNG and EV adoption in the city.
The inclusion of natural gas under the Goods and Services Tax regime could significantly benefit GGL. Currently, natural gas is subject to multiple indirect taxes, including state VAT, central excise duty, and central sales tax.
GST would streamline the tax structure and potentially reduce the overall tax burden on businesses. "The highest impact of the GST regime on gas will likely be felt by industrial and commercial customers," Nomura stated. A lower CNG price would make it more competitive against propane in the Morbi ceramics industry, and companies could claim input tax credit on gas purchases, potentially lowering their overall costs.
Nomura prefers MGL as its top pick due to its highest expected volume growth among peers and attractive valuation. On the other hand, GGL is the least preferred pick due to its high exposure to the I&C segment, muted volume growth outlook, limited room for price hikes, and demanding valuation.
Nomura has upgraded Mahanagar Gas to a 'buy' from 'neutral', setting a target price of Rs 1,680. Meanwhile, Indraprastha Gas retained its 'neutral' rating with a target price of Rs 210. Gujarat Gas continues to be rated 'reduce', with a target price of Rs 406 per share.
