Mahanagar Gas - Risk-Reward Favorable; Upgrade To 'Buy': HDFC Securities

Unison Enviro Pvt Ltd.’s acquisition to support volume growth from FY25.

<div class="paragraphs"><p>(Source: Mahanagar Gas website)</p></div>
(Source: Mahanagar Gas website)

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HDFC Securities Institutional Equities

Mahanagar Gas Ltd.'s stock price has corrected ~12% from the highs of August 2023 owing to weaker-than-expected volume growth. However, we expect the implementation of Kirit Parikh Committee recommendations from April 2023 and a decline in input gas costs to improve Mahanagar Gas’ volume growth.

Additionally, with the rise in crude oil prices sequentially, the risk of compressed natural gas price discount to petrol and diesel prices narrowing has declined.

The company’s acquisition of Unison Enviro Pvt Ltd.’s three geographical areas should also add to its overall volume growth.

At the current price, Mahanagar Gas’ valuation at 9.8 times September-24E earnings per share, a ~24% discount to its five-year average multiple of 12.9 times, remains attractive and provides favorable risk-reward as current market price implies only 2.5% volume growth.

We, therefore, upgrade our recommendation on Mahanagar Gas to a 'Buy' with a target price of Rs 1,210/share.

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HDFC Securities Institutional Equities Mahanagar Gas - Update.pdf
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