Synopsis: A small-cap company engaged in the business of City gas distribution has received a Buy recommendation from Motilal Oswal Financial Services. The company in context has a 3 year sales CAGR of 25 percent.
A small cap stock where the company is in the business of gas distribution and is presently supplying natural gas in the city of Mumbai has been given a buy rating by Motilal Oswal Financial Services. The broker has given a target of Rs 1535, which creates a 43 percent upside potential from the current market price.
With a market cap more than Rs 10,500 Cr, Mahanagar Gas is the stock in context, and this stock has given a compounded return of 7 percent in the last three years.
Brokerage View
The brokerage states that, Mahanagar Gas Ltd or MAHGL has seen a 21 percent stock correction over six months due to higher Henry Hub gas prices, rupee depreciation of around 6 percent YoY, and tariff hikes impacting margins. However, normalization in Henry Hub prices, a stable crude outlook, and expected rupee stability post the India- US trade deal point to easing input costs, margin recovery, and limited downside risk.
Henry Hub gas prices, which spiked due to severe US winter conditions, have corrected sharply and are expected to average lower levels going forward. Since around 34 percent of MAHGL’s gas sourcing is HH-linked, this normalization is expected to significantly improve blended gas costs and operating margins
In a zero-APM gas allocation scenario, MAHGL may require a modest Rs 4/kg CNG price hike to protect margins. Given that CNG remains substantially cheaper than petrol and diesel in Mumbai, such hikes are unlikely to hurt demand or vehicle registrations, supporting EBITDA stability over FY26- 28
Aggressive CNG station rollout and rising vehicle penetration continue to drive volume growth for Mahanagar Gas. The company plans to add around 50 standalone CNG stations in FY26 and targets 250 new stations by FY30, supporting an estimated 10 percent volume CAGR over FY26- 28
Going into numbers, MAHGL is currently trading at about 10.4 times its expected FY27 earnings, which is well below its FY26E’s 11.5x and usual historical valuation. with RoE and RoCE near 15 percent and negligible debt. Revenues are projected to rise from Rs 8060 Cr in FY26E to Rs 9870 Cr by FY28E, while PAT is expected to grow from Rs 910 Cr to Rs 1100 Cr for the same period.
With these rationals being highlighted, Motilal Oswal maintains a BUY rating on MAHGL, with a target price of Rs 1,535 , and this creates a potential upside of 43 percent for the stock.
The Q2FY26 Result
In the latest quarter the company saw a YoY revenue growth of 15 percent, going from Rs 1,786 Cr in Q2FY25 to Rs 2,049 Cr in Q2FY26, while the QoQ went down by 1 percent from Rs 2,081 Cr in Q1FY26. The YoY Net Profits fell by 32 percent, going from Rs 287 Cr in Q2FY25 to Rs 193 Cr in Q2FY26, while the QoQ fell by 40 percent from Rs 320 Cr in Q1FY26.
The company has a 3 year sales CAGR of 25 percent, while the TTM is at 19 percent. The company’s 3 year profit CAGR is at 18 percent, while the TTM number is at a negative 14 percent. The company also has a ROCE of 23 percent and a ROE of 18 percent.
Business Overview
Mahanagar Gas Ltd is an Indian natural gas distribution company, incorporated in 1995. It supplies CNG and piped natural gas across Mumbai and adjoining areas. The company is headquartered in Mumbai, India.
The company operates across 45,700 sq km, serving around 48 lakh urban households. It has 491 CNG stations, 717 km of steel pipelines, and 7,465 km of PE pipelines, and supports 12,50,000 CNG vehicles, 30,70,000 PNG connections, and more than 5,600 industrial commercial customers overall.
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