BackMahanagar Gas shares up 8% as Jefferies upgrades rating to 'buy'; sees solid margin visibility, growth volume in 2HFY24
Jefferies upgrades Mahanagar Gas stock to 'buy' with a 31% increase in price target, citing increased earnings visibility and a favourable risk-reward profile.
PremiumMahanagar Gas stock news: Mahanagar Gas share price surged over 8% on Tuesday's trading session after global brokerage Jefferies upgraded Mahanagar Gas stock with 'buy' rating from 'hold'. Jefferies forecasts a 31% increase from the Mahanagar Gas stock's closing price of ₹1,010.35 on September 28. Jefferies has also revised Mahanagar Gas share price target to ₹1,320 from ₹1,100, up 20%.
In its research report, Jefferies stated that increased earnings visibility and a favourable risk-reward profile led to the global brokerage's decision to upgrade the Mahanagar Gas stock.
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Mahanagar Gas share price opened at intraday level of ₹1,034.05 apiece on BSE. Mahanagar Gas stock price touched intraday high at ₹1,117. At 13:39 IST, Mahanagar Gas share price was trading at 7.56% higher at ₹1,106.80.
According to Rajesh Bhosale - Equity Technical and Derivative Analyst, Angel One, Mahanagar Gas stock has recently shown signs of a breakout in both price and trading volume, indicating increased market activity.
"Additionally, a diamond pattern on the daily chart has been identified, suggesting a bullish breakout. Given the strong technical formation, we anticipate that Mahanagar Gas stock price will reach new highs. Traders are advised to consider buying on any price dips. Our next price target is approximately 1160, with 1050 serving as a potential support level," advised Bhosale.
According to Jefferies, Mahanagar Gas's new OEM collaborations should support volume growth, and reduced high-pressure, high-temperature (HPHT) gas costs and the highest priority in allocation, in its opinion, provide solid margin visibility over 2HFY24-FY25E.
“Mahanagar Gas has recently tied up with passenger vehicle OEMs to offer fuel cards worth ₹20,000 free to car buyers and fuel worth ₹0.2m/ ₹0.35m/ ₹0.5m to small, medium and large CV buyers respectively. The company has secured 0.2 mmscmd (7% of priority sector volumes) HPHT gas and can get more volumes as CGDs now enjoy the highest priority in allocation. With incremental volumes from RIL and ONGC available over FY24-25E, we see healthy margin visibility for Mahanagar Gas as dependence on LNG will remain low," the brokerage said.
Further, the brokeragealso pointed out that CNG economics are advantageous, with discounts to petrol and diesel at roughly 50% and 35%, respectively, helping to raise conversion rates from 15,000 to 18–20,000 from what was recorded last quarter.
"HPHT gas price has been lowered to US$ 9.96/mmbtu (from US$ 12.12/mmbtu) in 2HFY24E which cushions impact on Mahanagar Gas's margins from sharp rise in LNG prices. With new HPHT gas production commencing in 2HFY24-FY25E, MAHGL should be able to maintain Ebitda per scm in ₹12-13 range. We u/g our Ebitda margin estimates to ₹12.8/12.5 per scm in FY24/25E," said Jefferies in its report.
On Tuesday's trade, other oil stocks, Indraprastha Gas, Gujarat Gas Company, Gujarat State Petronet, Mahanagar Gas, and Confidence Petroleum India were up over 1% to 4%.
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