Mahanagar Gas Share Price Target at Rs 1760: Motilal Oswal Research
Mahanagar Gas (NSE: MAHGL) has received a BUY recommendation from Motilal Oswal Financial Services with a 12-month target price of Rs1,760, representing 32% upside from current levels of Rs1,330. The natural gas distributor shows resilient volume growth (10% CAGR projected through FY27) and margin stabilization despite sector headwinds. Key catalysts include falling LNG prices, strategic infrastructure expansion, and diversification into battery manufacturing. Technical charts suggest the stock has bottomed after a 30% correction since October 2024, now trading at attractive valuations of 11x FY27 earnings.
Investment Thesis: Triple Engine Growth Strategy
Motilal Oswal's bullish stance stems from three operational drivers:
1. Volume Acceleration Playbook
The company plans to add 250 CNG stations and 180km pipeline network by FY30. Current 12% YoY volume growth is expected to sustain through 2027, driven by:
20%+ annual growth in industrial/commercial PNG connections
40% YoY expansion in UEPL subsidiary volumes
BEST depot optimization adding 15 high-throughput stations
2. Margin Protection Mechanisms
Recent Rs1.5/kg CNG price hike and falling input costs create EBITDA/scm upside beyond guided Rs9-11 range. Brent crude at $65/bbl (vs $75.8 in 4QFY25) reduces gas procurement costs by Rs17.3/mmbtu. Management maintains 21.9% EBITDA margin guidance for FY27.
3. Future-Proofing Through Diversification
Strategic moves include:
40% stake in 1GW battery plant (Rs9b capex)
LNG fueling infrastructure for heavy transport
Waste-to-energy CBG plant partnership with BMC
| Financial Metric | FY25 | FY26E | FY27E |
|---|---|---|---|
| Volume (mmscmd) | 3.37 | 3.70 | 4.05 |
| EBITDA Margin | 21.8% | 21.8% | 21.9% |
| ROCE | 19.0% | 17.8% | 17.4% |
Valuation: Deep Value Emerges
The stock trades at compelling multiples compared to historical averages:
| Ratio | Current | 3-Yr Avg | Upside |
|---|---|---|---|
| P/E (FY27) | 11.0x | 13.8x | 25% |
| P/B | 1.8x | 2.9x | 61% |
| FCF Yield | 2.5% | 1.8% | 39bps |
Business Outlook: The EV Paradox
Management downplays electric vehicle disruption risks through strategic positioning:
Focus on 3.5-ton+ commercial vehicles where EV penetration remains
LNG trucking solutions for long-haul transport (14% cost advantage vs diesel)
Battery manufacturing JV creates optionality in energy storage value chain
Technical Perspective: Accumulation Zone
The weekly chart shows bullish divergences:
RSI (14) at 38.6 vs oversold reading of 29.2 in January 2025
200-week EMA support holds at Rs1,275
Cup-and-handle pattern projects Rs1,745-1,820 target range
Key Risks to Monitor
1. Regulatory Overhang: Potential APM gas allocation changes could impact 7-10% of current supplies
2. Execution Challenges: 1GW battery plant timeline (12-14 months) appears aggressive
3. Fuel Price Volatility: $10/bbl Brent increase would erase Rs4.2b annual EBITDA
Conclusion: Compelling Risk-Reward Proposition
Mahanagar Gas presents a unique combination of defensive cash flows (28.4% payout ratio) and growth optionality through energy transition initiatives. Motilal Oswal's Rs1,760 target implies 15x FY27 EPS of Rs121 - conservative compared to the stock's 10-year average P/E of 18.4x. Investors with 18-24 month horizon should accumulate below Rs1,400 levels.
