Mumbai: Natural gas distribution company Mahanagar Gas Ltd (MGL) saw a bumper response to its initial public offering that ended on Thursday, with the public issue subscribed more than 64 times the shares on offer.

As of 8pm, the overall book was subscribed 64.51 times, stock exchange data showed. On the lower price band of 380 per share, the public issue received bids worth around 43,000 crore across investor categories.

The demand, in value as well as volume (application) terms, is the highest since the initial share sale of MOIL Ltd in December 2010.

The institutional investor category of 4.89 million shares was subscribed 72.8 times. The non-institutional category comprising high net-worth individuals was subscribed 191.6 times.

Retail individual investors, whose investments cannot exceed the maximum cap of 2 lakh in an IPO, applied for 6.76 times the shares on offer, stock exchange data showed.

Share made available for eligible employees was subscribed 1.18 times, data showed.

V. Jayasankar, senior executive director and head of equity capital markets, Kotak Mahindra Capital Co. Ltd attributed the strong response to the active and growing primary market in India.

“Primary market is in great shape and getting very active. Management had done great job of positioning the equity story well and investors appreciated free cash flow generated every year. Several marque investors participated in the anchor and strong demand reflected in QIB oversubscription. Equally important, the retail participation by application count is amongst the highest since 2011," Jayasankar said, adding that more than 975,000 applications were received for MGL’s IPO as of 7.30pm.

Kotak Mahindra Capital Co. Ltd and Citigroup Global Markets India Pvt. Ltd are managing the share sale.

The issue was fully subscribed on Tuesday, the first day.

Mahanagar Gas raised 309.36 crore on Monday by allotting shares to anchor investors. The firm sold 7.34 million shares to 25 institutions at 421 per share, the upper end of the 380-421 price band for the issue. The anchor book is that portion of an IPO which bankers allot to institutional investors on a discretionary basis. Anchor book subscription opens a day before the IPO launch and is an indicator of institutional investor interest.

In Mumbai’s grey market, Mahanagar Gas’s shares were being quoted at a premium of 115-120 per share on Thursday, two dealers said on condition of anonymity. “MGL’s sales volume and revenue grew at the CAGR (compound annual growth rate) of 5.7% and 12.3%, respectively over FY12-FY16. At upper price band, MGL will trade at 12.6x FY16 earnings, while its peer Indraprastha Gas currently trades at 18x FY16 standalone earnings. However, we believe that the valuation gap will shrink, going forward given growth prospects of MGL. Considering MGL’s vast network, potential growth opportunities in newer areas, robust natural gas consumption outlook suggesting steady growth, strong management background, high entry barriers and attractive issue price (upper price band) vis-à-vis peers, we recommend subscribe to the issue," said Reliance Securities Ltd’s analyst Vikas Jain, in a client note on 17 June. Mahanagar Gas is the sole authorized distributor of compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai, its adjoining areas and Raigad district in Maharashtra. CNG is used in motor vehicles and PNG for household, commercial and industrial use. Through its IPO, the natural gas distributor plans to raise 1,040 crore.

Further, MGL’s gas-tie up, 85% of which comes from domestic players, has got a boost by the change in the domestic gas allocation policy wherein City Gas Distribution (CGD) companies are allocated 110% domestic gas towards CNG and PNG (domestic) segments.

“MGL has good growth prospects going forward. Policies such as domestic gas allocation and ban on heavy diesel passenger vehicles in some geographies will work well for city gas distribution firms. Indraprastha Gas Ltd, MGL’s counterpart in Delhi has seen an impressive growth. Also, with rise in price of diesel and petrol, CNG stands to gain," said K. Ravichandran, senior vice-president, co-head, corporate sector ratings, ICRA Ltd.

“We are looking at bidding for new cities, as and when they come up for bidding. We are also looking at penetrating more and more into the households in Mumbai and open new gas stations to expand our network," Rajeev Mathur, managing director of Mahanagar Gas, said on 14 June.

Mathur added that the company has a robust infrastructure in place which will support its future growth. “The company has significant growth potential and it is backed by favourable regulatory environment and the policies of the government."

Besides, pricing could play a big role in the expansion of the customer base for CNG. At 41.20/kg, the pricing of CNG is competitive when compared to petrol and diesel. In Mumbai, petrol retails at 70.23/litre and diesel 60.55/litre.

As part of its expansion strategy, MGL may also consider the inorganic route for growth and pick up equity stakes in other CGD entities, an official from the company said on condition of anonymity.

Close