Here’s what Shell India selling 10% stake in Mahanagar Gas means for the stock

Mumbai: Shares of Mumbai-based city gas distributor, Mahanagar Gas Ltd (MGL) jumped about 10% on Tuesday morning on the National Stock Exchange. Not without reason. Shell India is looking to sell its remaining 10% stake in MGL.

“One of the reasons why the stock has under-performed is the overhang of Shell potentially selling the remaining 10% stake in the company but with the overhang to be removed now, it could be positive for the stock,” said analysts from Jefferies India Pvt. Ltd in a report on 19 August.

The broker added, “We do not foresee the exit of Shell to have any negative fundamental impact on MGL since they have been in the business for more than 20 years and it is more process driven from here on.”

In April 2018, Shell had sold 8.5% stake in MGL and a further 14% stake was sold in August 2018. This reduced Shell’s stake in MGL to 10% from 32.5%.

To be sure, excluding Tuesday’s sharp increase, MGL’s shares had declined by almost 24% so far in this financial year. One of the reasons for this rather muted show has been due to concern that Shell will sell its stake, according to analysts.

As such, volume performance would remain a key moniterable for the stock, going ahead. MGL’s volume performance wasn’t impressive for the recently concluded June quarter. Overall volumes of the company increased by 3.3% year-on-year, lower than Street expectations. On the brighter side, Ebitda performance was commendable helped by a relatively slower rate of increase in input cost and better realisations. Ebitda is short for earnings before interest, tax, depreciation and amortisation and is a key measure of profitability.