Royal Dutch Shell Plc. will now have an option to exit the city gas distribution business as the lock-in period for minimum promoter holding after listing of a company expires next month.
The Netherlands-based energy and petrochemical company's subsidiary BG Asia Pacific Holdings Pte Ltd.—a promoter of Mahanagar Gas Ltd.—has sold 35 percent stake in Mumbai's only city gas distributor since listing, according to data compiled by BloombergQuint from the exchanges. The stake sale came after it changed its strategy to invest more in upstream exploration businesses.
Shell is now left with 10 percent stake in Mahanagar Gas, but it was restricted from paring more for three years because of the market regulator's listing norms. Mahanagar Gas was listed in June 2016 and the lock-in period expires on July 1.
If Shell chooses to exit Mahanagar Gas after nearly 23 years, it will only add to the overhang on the company's stock price. Shares of the city gas distributor have declined over 15 percent in more than a year compared with a gain of 11 percent and 1 percent, respectively, for Indraprastha Gas Ltd. and Gujarat Gas Ltd. during the period.
Shell's spokesperson declined to comment on BloombergQuint's query while Mahanagar Gas has yet to respond.
Analysts' View
The stake sale by Shell won't have any impact on Mahanagar Gas' business. Even analysts tracked by Bloomberg expect maximum return potential from Mahanagar Gas.
More than three-fourths of the analysts tracking the company suggest a ‘Buy', according to Bloomberg data. That's mainly on the back of attractive valuations, higher free cash flow generation, strong pricing power and decent payouts, according to multiple brokerages.
But some analysts also remain cautious on the company's volume growth.
Mahanagar Gas' volume growth potential is expected to be capped as the key Mumbai market is nearing saturation, and compressed natural gas infrastructure is witnessing slow growth, the brokerages said in their research notes. Moreover, the incremental volumes that are expected to come in from Raigad, Maharashtra, is expected to dilute its margins, they said.
(The reasons have been compiled from research reports of Antique Broking, Centrum Wealth Management, Citi, CLSA, Jefferies, Kotak Securities and SBICAP Securities, among others.)
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