Active Stocks
Fri Jun 14 2024 15:58:47
  1. HDFC Bank share price
  2. 1,597.45 1.05%
  1. State Bank Of India share price
  2. 840.20 -0.44%
  1. Tata Steel share price
  2. 183.05 0.30%
  1. ICICI Bank share price
  2. 1,105.10 -0.20%
  1. Kotak Mahindra Bank share price
  2. 1,717.00 -0.54%
Business News/ Markets / Stock Markets/  IGL vs MGL: Which gas stock should you choose for long-term? Here's a 5-point analysis
BackBack

IGL vs MGL: Which gas stock should you choose for long-term? Here's a 5-point analysis

IGL vs MGL: Both gas stocks received a ‘buy’ rating from BOB Capital Markets. The stock prices are discounting growth below seven per cent over the next decade, said the brokerage.

IGL vs MGL: Brokerages have given a bullish rating on both CGDs over strong volumes and margins (Picture Credits: Unsplash)Premium
IGL vs MGL: Brokerages have given a bullish rating on both CGDs over strong volumes and margins (Picture Credits: Unsplash)

Leading city gas distributors (CGDs) Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) declared their January-March quarter results for fiscal 2023-24 (Q4FY24) this month and have received bullish-to-neutral rating from domestic brokerage firms. Earlier this year, the CGDs announced a reduction in their respective compressed natural gas (CNG) prices across all locations.

MGL, the city gas operator in Mumbai and its adjoining areas, announced a 2.5 per kg reduction in the CNG price on March 6. Accordingly, the revised CNG price will be 73.50 per kg. The reductions followed a softening in input gas prices.

"MGL's CNG price now offers attractive savings of 53 per cent compared to petrol and 22 per cent compared to diesel at current price levels in Mumbai while delivering unmatched convenience, safety, reliability and environmental friendliness to consumers," the CGD said in a statement on March 5.

Also Read: IGL Q4 Results: Net profit rises 9% to 433 crore, revenue down 2% YoY; dividend declared

IGL announced a similar price reduction in Delhi and the adjoining cities a day later. "The retail consumer price of CNG is being reduced by 2.50 per kg across all geographical areas of IGL from 6 am on Thursday, 7th March 2024. The revised selling price of CNG in Delhi shall be 74.09 per kg, while it shall be 78.70 per kg in Noida, Greater Noida and Ghaziabad,'' said IGL. 
 

Stock Price Trend

IGL has underperformed the domestic benchmarks Nifty 50 and Sensex this year. In the last six months, IGL has provided 16.65 per cent returns on investments, however, in the last one year, the returns are negative to the tune of 5.07 per cent, compared to Nifty 50's 25.41 per cent and Sensex's 21.71 per cent returns.

On Thursday, shares of IGL settled 2.92 per cent higher at 454.20, against a 52-week high of 501.35 apiece on the BSE. Shares of MGL settled 0,54 per cent higher at 37.39, against a 52-week high mark of 52.35 apiece on the BSE.

On the other hand, MGL has performed better than the benchmarks in the last one-to-three year time period. In the last one-to-three months, the gas stock has provided negative returns to the tune of 6.58 per cent and 15.7 per cent. However, in the last one year, MGL has given 25.68 per cent returns, compared to Nifty 50 and Sensex.
 

Q4 Results

IGL reported a rise of nine per cent in consolidated net profit at 433.79 crore in the March quarter of FY24, compared to 397.51 crore in the corresponding period last year. The revenue from operations in the quarter-under-review dropped two per cent to 3,964.42 crore, compared to 4,056.44 crore in the year-ago period. IGL's board also recommended a final dividend of 250 per cent at Rs.5 per equity share for a face value of 2 each for FY24.

MGL reported a decline of 16.5 per cent year-on-year (YoY) in net profit to 265 crore in the March quarter, while revenue stood marginally lower by 0.1 per cent at 1,567 crore. On the operating level, MGL's earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at 394 crore, down 12.2 per cent YoY. Margin for the quarter was 25.1 per cent compared to 26.9 per cent in the year-ago period. MGL's board also declared a final dividend of 18.

Also Read: Q4 Results Impact: IGL stock jumps 7% after net profit rises 9% in March quarter

Volumes

Both MGL and IGL have seen good traction in volumes post Covid, with volume growth CAGR of 17.7 per cent and 16.5 per cent, respectively. On medium-term volume growth, MGL has been significantly better than the 4.7 per cent CAGR it clocked over FY17-20, prior to Covid.

Post Covid growth has been primarily driven by improved traction in the CNG vehicles and industrial segments. The CNG segment has found support in favourable policies to improve thecompetitiveness of CNG vs liquid fuels. Traction in the industrial segment is attributable to achange in approach by both CGD players to prioritise volume over margin and offer a discount on alternate fuels to attract new volumes.

Also Read: IGL, MGL, Gujarat Gas: Decline in Asian spot LNG price to aid earnings prospects

For long-term volume, IGL has the advantage of a significantly larger footprint. Besides Delhi, IGL operates in Gautam Budh Nagar, Ghaziabad, Hapur, Muzaffarnagar, Shamli, and uncovered parts of Meerut and Kanpur, Fatehpur and Hamirpur in Uttar Pradesh; and districts Rewari, Gurugram, Karnal and Kaithal in Haryana, and Ajmer, Pali and Rajsamand in Rajasthan. 

‘’We give credit to IGL for this larger footprint (at different stages of development) by using four per cent terminal growth (including inflation) in our DCF valuation against the 2.5 per cent that we use for MGL,'' said BOB Capital Markets.

Valuation


MGL: MGL is breaking out of its historically modest growth trend and clocking 10 per cent YoY volume growth in H2FY25, which supports the FY24-26 volume CAGR of 7.4 per cent, as against its past trajectory of four per cent reported over FY19-FY24.

''We lower the MGL’s target price (TP) to 1,545 from 1,590 as we incorporate our revised estimates into our DCF-based fair value for the core business and roll forward our TP to May’25 (from Jan’25),'' said BOB Capital Markets.

‘’We believe MGL deserves a higher multiple than in the past as it looks set to deliver a higher volume CAGR of 7.4 per cent for its existing operations over FY24-FY26 and potentially at 6.8 pwe cent including UEPL over FY24-33.  This is significantly higher than the four per cent CAGR seen over FY19-FY24. Our TP implies 19 per cent upside and, hence, we reiterate our BUY rating,'' it added.

Also Read: Emkay projects Brent oil price range at $83 to $92 per barrel in short term

IGL: IGL’s EBITDA is expected to grow by 8.5 per cent CAGR, driven by volume growth of 7.7 per cent and normalisation of margin to ~ 8/scm by FY26 as the global LNG market turns into surplus. Growth will continue outside Delhi.

‘’We have a DCF-based TP of 525. Key assumptions for our DCF-based fair value are cost of equity of 11 per cent, terminal growth of four per cent, volume CAGR of ~6.8 per cent and average EBITDA margin of 7.8/scm over our explicit and semi-explicit forecast period of FY25-FY33. As our TP implies ~19 per cent upside, we reiterate our BUY rating on IGL,'' said the brokerage.

 

Key Risks:

The key downside risks to estimates by BOB Capital Markets for MGL and IGL are:
-Lower-than-expected margins arising from an inability to pass on higher gas purchase cost to consumers
-Material reduction in taxation structure on petrol and diesel, which could lower competitiveness of CNG and result in lower margins for MGL
-Slower volume growth than our assumptions, with faster-than-expected penetration of electric vehicles
-Adverse Petroleum and Natural Gas Regulatory Board (PNGRB) or government regulations that could impact our margin or volume outlook.

 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

3.6 Crore Indians visited in a single day choosing us as India's undisputed platform for General Election Results. Explore the latest updates here!

ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 23 May 2024, 08:17 PM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started