MGL, IGL shares jump 6% each after UBS lifts target price, expects over 30% upside

UBS has upgraded the rating on IGL to 'buy' from the previous rating of 'sell' and also lifted its target price from 400 to 700. Similarly, it has increased the target price for Mahanagar Gas from 1,600 to 2,400 per share.

A Ksheerasagar
Published17 Sep 2024, 12:09 PM IST
Trade Now
MGL, IGL shares jump 6% each after UBS lifts target price, expects over 30% upside.
MGL, IGL shares jump 6% each after UBS lifts target price, expects over 30% upside. (Pixabay)

Despite front-line indices trading within a narrow range during Tuesday's session, shares of city gas distribution companies Mahanagar Gas and Indraprastha Gas experienced notable gains. Mahanagar Gas (MGL) surged by 6.7 per cent, reaching a new record high of 1,943 per share, while Indraprastha Gas (IGL) rose by 6.2 per cent, reaching 562.75 per share.

The rally was sparked by a revised outlook from global brokerage UBS, which upgraded its rating and target price for IGL and set a new record high target price for MGL

Double upgrade for IGL

The brokerage has upgraded the rating on IGL to 'buy' from the previous rating of sell' and also lifted its target price from 400 to 700, which reflects an upside potential of 32.32% for the stock from its previous closing price. 

UBS emphasized that the company's strong near-term fundamentals are now supported by promising inorganic growth opportunities. The brokerage had previously been cautious about IGL due to slower volume growth in recent quarters and concerns about the risks associated with electrification.

Also Read | IGL rallies 14% in three months, outperforms Sensex by 5%; Buy or sell?

However, the brokerage now expects IGL's volume growth trajectory to improve, projecting an increase from 4 per cent year-on-year in FY24 to an 8.2 per cent CAGR between FY24 and FY27. UBS pointed to IGL’s expansion into new geographies and infrastructure development as key growth drivers, with potential mergers and acquisitions (M&A) opportunities yet to be reflected in the stock price.

MGL TP raised to 2,400

Similarly, UBS has increased the target price for Mahanagar Gas (MGL) from 1,600 to 2,400 per share, which implies a potential upside of 32 per cent from the stock’s most recent closing price. It continued with its 'buy' recommendation on the stock. 

It raised its volume growth expectations for FY25 to FY27, forecasting an increase of 7 per cent to 11 per cent, anticipating that both organic and inorganic growth in volumes could exceed expectations. Infrastructure development and the expansion of CNG fleets are expected to drive this growth.

Also Read | Mahanagar Gas share price rises 5% following CNG, PNG price hikes in Mumbai

It also lifted its EBITDA per standard cubic meter (scm) forecast for FY25-27 by 6-11 per cent to 12.1-12.3/scm, factoring in MGL’s pricing strategies. Similar to IGL, potential M&A opportunities have not yet been factored by the brokerage into MGL’s current stock price.

CNG 2Ws; a growth avenue in the long term

In their Q1FY25 earnings report, both companies highlighted the launch of the world’s first CNG motorcycle by Bajaj Auto in early July. TVS Motors is also exploring the CNG scooter market, with a model expected to launch in the first half of CY25.

While these innovations may open new growth avenues for city gas distribution companies (CGDs), the impact is likely to be more significant in the long term rather than the near term. Volume growth will depend on the adoption rate of CNG two-wheelers, which is expected to increase as more units become available on the roads.

Also Read | Bajaj Auto to introduce new CNG, Ethanol, and electric vehicles by FY25: Report

Bajaj Auto has started with an initial production of 20,000 units per month, beginning in Maharashtra and Gujarat, with plans to expand to other states in the coming quarter.

In Q1 FY25, Mahanagar Gas reported a capital expenditure of 2.5 billion. The company plans to add over 50 new CNG stations at a standalone level and approximately 25 stations in UEPL’s geographical area during FY25.

Indraprastha Gas has projected a capital expenditure of 17-18 billion for FY25. In Q1FY25, IGL's capex was about 3 billion, compared to 2 billion in the same quarter of the previous year.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

 

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.

MoreLess
First Published:17 Sep 2024, 12:09 PM IST
Business NewsMarketsStock MarketsMGL, IGL shares jump 6% each after UBS lifts target price, expects over 30% upside

Most Active Stocks

Tata Steel share price

168.95
12:21 PM | 30 SEP 2024
2.45 (1.47%)

Bharat Petroleum Corporation share price

366.20
12:21 PM | 30 SEP 2024
-1.1 (-0.3%)

Bharat Electronics share price

287.45
12:21 PM | 30 SEP 2024
-5.9 (-2.01%)

NTPC share price

444.60
12:21 PM | 30 SEP 2024
7.05 (1.61%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Astrazeneca Pharma India share price

7,617.00
12:11 PM | 30 SEP 2024
431.35 (6%)

JM Financial share price

150.85
12:13 PM | 30 SEP 2024
8.1 (5.67%)

NMDC share price

245.90
12:13 PM | 30 SEP 2024
10.8 (4.59%)

Godawari Power And Ispat share price

1,103.00
12:13 PM | 30 SEP 2024
46.5 (4.4%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    77,405.00-10.00
    Chennai
    77,411.00-10.00
    Delhi
    77,563.00-10.00
    Kolkata
    77,415.00-10.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.98/L0.23
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00

    Popular in Markets

      HomeMarketsPremiumInstant LoanMint Shorts