Mahanagar Gas Stock Turns Attractive After 30% Fall — Is It Time to Buy?
Mahanagar Gas Stock: Gas Ltd (MGL), a leading player in India’s City Gas Distribution (CGD) sector, has witnessed a steep 30% fall in its share price over the last eight months. Once trading at ₹1,988, the stock has now corrected to around ₹1,393, drawing investor attention and raising an important question — is this correction a golden buying opportunity?
What’s Behind the 30% Fall?
The sharp correction has primarily been driven by pressure on profit margins. Rising raw material costs, uncertainties around Administered Pricing Mechanism (APM) gas allocations, and reduced clarity on future gas supply policies have kept investor sentiment subdued.
Adding to the concern were multiple APM gas de-allocations — an essential component for CGD companies like MGL. The combination of high input costs and policy ambiguity has directly impacted earnings, causing the stock to underperform broader indices.
Why Analysts Are Turning Bullish
Despite the recent slump, domestic brokerage Motilal Oswal maintains a bullish stance on MGL. According to the firm, the fundamentals are now undergoing a transformative shift, which makes the stock’s current valuation attractive.
Two major macroeconomic tailwinds are working in MGL’s favor:
- Declining crude oil prices: Brent crude prices averaged USD 75.8/barrel in Q4FY25. Motilal Oswal expects this to drop to USD 65/barrel in FY26 and FY27.
- Improved long-term gas supply contracts: New contracts are being signed at a 1.0–3% lower slope due to a looming LNG supply glut expected from the second half of FY26 onwards.
Motilal points out that for every USD 10/barrel decline in Brent prices, the landed cost of natural gas drops by approximately USD 2.3 per MMBtu. This directly translates into better margins for CGD companies like MGL.
Multiple Growth Initiatives in Place
MGL’s management has remained optimistic about the company’s growth trajectory. It has maintained a volume growth guidance of over 10% year-on-year for the next 2–3 years. Motilal Oswal projects a 10% CAGR in volume growth from FY25 to FY27, backed by the company’s proactive initiatives, including:
- Collaborations with OEMs to boost conversion of commercial vehicles to CNG.
- Price discounts for new Industrial and Commercial PNG customers.
- New fueling infrastructure: 15 BEST depot CNG stations now being made available for commercial vehicles (with prior registration).
- Expansion Plans: The company plans to add 250 CNG filling stations by FY30 and modernize existing ones.
- Diversification into future-ready sectors: MGL’s 1 GW battery manufacturing project (₹900 crore capex, with 40% equity stake) will go live within 12–14 months. The company is also investing in Compressed Bio-Gas (CBG) and LNG segments, aiming for scalability over the next few years.
Attractive Valuations Backed by Solid Forecasts
Motilal Oswal has retained a “Buy” rating on MGL, setting a price target of ₹1,760. The valuation is based on 15x its FY27E EPS of ₹121, indicating upside potential of over 25% from the current levels.
The brokerage expects EBITDA margins of ₹10/scm during FY25–FY27 and sees MGL as a preferred pick in the CGD space given its volume growth visibility and strategic initiatives.
Financial Snapshot (as of latest available data)
| Metric | Value |
|---|---|
| Market Cap | ₹13,750 Cr |
| Current Price | ₹1,393 |
| 52-Week High / Low | ₹1,988 / ₹1,177 |
| Stock P/E (TTM) | 10.8 |
| Book Value | ₹569 |
| Dividend Yield | 2.18% |
| ROCE (FY24) | 22.5% |
| ROE (FY24) | 18.7% |
| Debt to Equity | 0.02 |
| Promoter Holding | 32.5% |
Conclusion: A Solid Bet for Long-Term Investors?
With raw material costs expected to ease and demand growth supported by infrastructure expansion and diversification, MGL appears well-positioned to recover. The current price level presents an opportunity for investors looking for value in the energy space, especially in a policy-backed growth sector like CGD.
Frequently Asked Questions (FAQs)
Q1: Why has Mahanagar Gas stock fallen by 30%?
A: The fall is due to pressure on margins from higher raw material costs, APM gas de-allocations, and uncertainty around future gas allocation policies.
Q2: Is now a good time to buy MGL shares?
A: According to Motilal Oswal, the correction presents a buying opportunity, supported by favorable crude price outlook and long-term gas supply contracts.
Q3: What is the price target for MGL stock?
A: Motilal Oswal has a ‘Buy’ rating with a target price of ₹1,760, implying over 25% upside from the current level.
Q4: What are MGL’s future growth plans?
A: Plans include expanding CNG infrastructure, investing in a 1 GW battery factory, and scaling up CBG and LNG businesses.
Q5: How do crude oil prices impact MGL’s margins?
A: A $10/barrel fall in Brent crude reduces gas costs by $2.3 per MMBtu, which improves margins for CGD companies like MGL.
Q6: Is MGL financially strong?
A: Yes, the company has a low debt-equity ratio of 0.02 and high returns on capital (ROCE: 22.5%) and equity (ROE: 18.7%).
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