Shares of Mahanagar Gas were gaining on Thursday after the natural gas distribution firm received an upbeat call from a global brokerage.
What Happened: Jefferies hiked its target price for Mahanagar Gas to ₹2,120 from ₹1,990, while sticking to its “buy” rating, suggesting a potential 17% rise from the current levels.
Jefferies is upbeat about MGL’s future, pointing out that the company's volume growth is improving, aided by the faster addition of new outlets and strong industrial demand.
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Slight Niggles, But All’s Good: The brokerage did flag a potential concern around the declining administered price mechanism (APM) gas allocations, which are a key challenge for city gas distributors (CGDs) like MGL.
APM gas, sourced from ONGC and Oil India, is priced lower by the government compared to market-priced natural gas like spot liquefied natural gas. Reduced allocations mean CGDs have to buy more expensive gas, pushing up costs and squeezing margins, which could lead to higher prices for customers.
Despite this, Jefferies believes MGL is in a stronger position than its peers. The company’s lower reliance on pricey spot LNG helps protect its margins. As a result, Jefferies said MGL remains its top pick in the CGD sector.
Price Action: Mahangar Gas’ share price was up 1.53% at ₹1,835.85 in the early hours of trade on Thursday. The stock has gained over 52% so far this year.
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