Shares of Mahanagar Gas Limited (MGL) rose 2 percent in early trade on September 12. The stock opened with a gain at Rs 1812.40. Brokerage firm Jefferies has raised its target price for Mahanagar Gas Limited shares from Rs 1,990 to Rs 2,120. It has also reiterated the ‘buy’ rating. The new target price is 17 percent higher than the previous closing price of the stock.
Jefferies is optimistic about MGL’s growth. Jefferies said in a note that the rapid pace of outlet additions and healthy industrial volume growth are improving the company’s volume growth outlook.
Stock up 52% so far in 2024
MGL stock has gained nearly 38 percent in the last six months. The stock price has gained 52.10 percent so far in the year 2024. The market cap of the company is Rs 18100 crore. The stock touched a high of Rs 1852.60 during the day. The stock has a 52-week high of Rs 1,911.95 on BSE.
Why MGL is Jefferies’ top pick among city gas distributors
Jefferies says the decline in Administered Price Mechanism (APM) gas allocations poses structural challenges for city gas distributors (CGDs) like MGL. This is because APM gas obtained from nomination blocks of Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) is priced at lower rates than natural gas such as spot LNG. This pricing system sets the minimum and maximum rates at which exploration companies can sell gas to city gas distributors.
A drop in APM gas allocation forces city gas distributors to buy more expensive gas from the open market. This increases their costs, puts pressure on margins and pushes up prices for the end consumer. However, Jefferies believes MGL is better placed to protect its margins than peers due to its lower reliance on expensive spot LNG.
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