Home / Markets / Stock Markets /  Gujarat Gas, IGL, MGL: What Jefferies recommends on Indian oil & gas stocks

The recent hike in domestic gas allocation for CNG has created room for Indraprastha Gas (IGL)/ Mahanagar Gas (MGL) to defend their respective Ebitda per scm till US$ 70/60 per mmbtu Spot price (assuming APM price is capped at current level), as per global brokerage Jefferies.

Meanwhile, Gujarat Gas could surprise positively if it receives its contracted spot volumes in 2HFY23, Jefferies' note on Indian city gas companies stated. However, the brokerage sees earnings downside risk of 7-22% if Gujarat Gas fails to procure the contracted Spot volume at $30.

"In a recent notification, the MoPNG has allocated higher volume of domestic gas to the CGD priority sector (domestic PNG + CNG) by diverting gas earmarked for the industries. As a result, the overall allocation of domestic gas has been increased to 20.8 mmscmd, sufficient to meet 94% of CNG demand (up from 85%). The gas cost has fallen 40% from $10.5/mmbtu to $6.26/mmbtu. IGL and MAHGL would be key beneficiaries with the priority sector contributing 70% of their respective volumes," the note stated.

Gujarat Gas Ltd: The brokerage has Buy rating on Gujarat Gas shares with a price target of 525. Key downside risks, as per Jefferies, are lower crude (impacting substitute liquid fuels), while LNG costs stay high, COVID-19 disruption affecting industrial production and weaker demand for ceramic in India, as well as exports.

Indraprastha Gas Ltd: It values IGL shares for a target price of 450 with Buy tag. “Key upside risk is a margin expansion from current levels. Key downside risks are a domestic gas price floor, open access in CGD, any change in domestic gas allocation policy leading to unfavorable economics, a softening of stance against substitute fuels and lower than expected volumes with a slowdown in vehicle additions," it said.

Mahanagar Gas Limited: With a Hold rating, Jefferies has a price target of 900 on MGL shares. Key downside risks are COVID 19 disruption affecting CNG volumes; a negative surprise on margins, led by a change in domestic gas allocation policy or a floor to domestic gas price; and greater-than-expected open access impact, it said.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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