Morgan Stanley predicts a 31% increase in MGL shares, asserting that natural gas is poised to become the primary fuel source for Mumbai in the future.
Morgan Stanley : The renowned international brokerage firm, Morgan Stanley, recently initiated coverage on Mahanagar Gas Ltd (MGL), a prominent city gas distribution player, with an overweight rating. Along with this rating, the brokerage issued a target price of Rs 1,606, indicating a 31 percent upside from the previous session’s closing price.
Morgan Stanley views natural gas as the fuel of the future for Mumbai, a city with increasing energy and transportation demands. MGL is leading the way in this transition, which Morgan Stanley compares to a Tesla-like moment for gas adoption in the city.
While the global gas market is projected to remain balanced until 2025, there may be an oversupply by 2027. Approximately 20 percent of MGL’s gas supply is tied to LNG, and although margins could tighten, Morgan Stanley believes the company’s robust volume growth will lead to a market re-rating.
As of 10:30 am, MGL shares were trading four percent higher at Rs 1,276 per share on the NSE. City gas distribution (CGD) shares have been in the spotlight recently. In November, the central government reduced the Administered Price Mechanism (APM) allocation to CGD players by 20 percent for the second consecutive month.
This reduction in APM allocation means that the supply of low-priced natural gas from old fields to city gas retailers has been cut by the Centre. Consequently, CGDs will need to explore alternative options like New Well Gas or spot LNG, which are more costly, to bridge the gap in input gas.
Following this news, the stocks of these companies experienced a significant decline, dropping over 40 percent from their 52-week highs. However, they have since rebounded impressively on the stock exchanges over the past month. During this period, IGL shares have surged by 24 percent, while MGL and Gujarat Gas have seen gains of 13 percent and 10 percent, respectively.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.