Brokerage firm Sharekhan has suggested buy shares of Indraprastha Gas Limited (IGL), Mahanagar Gas Limited (MGL) and Gujarat Gas Limited. Sharekhan has fixed its target price. 480 for the stock despite the fact that the shares of IGL ended Friday 418.65 per share. Sharekhan has forecast a gain of 14% over the current market price of the share. to brokerage. Recommended stock to buy with target price of 14.75% is expected to rise Shares of MGL closed on Friday after 980 854.00 each. Shares of Gujarat Gas Limited closed at Rs. 457.00 per share, but the stock is representing a rally of 19.25% for Sharekhan, and the brokerage has set a target price of Rs. 545 for stock.
Research analysts at broking firm Sharekhan said, “With the recent revision in the domestic gas allocation policy, gas supply to city gas distribution companies (CGDs) will increase from 2.4 mmscmd to 20.7 mmscmd and this will reduce domestic gas shortfall to just 6%. 15% in Q1FY23 vs. This is positive for IGL/MGL (considering higher exposure to CNG/D-PNG at 81%/87% of total gas sales volume in Q1FY23) as it reduces gas cost by 25% Towards ~$8.4/mmBtu versus Uniform Compound Price (UBP) of $10.5/mmBtu in August 2022. Additionally, the potential capping of the domestic gas price (expected to increase to $10/mmBtu from October 2022) will maintain/maintain the current EBITDA margin. Policy support for CGD players will help sustain high volume growth for IGL/MGL (CNG volume growth of 21%/14% in Q1FY23 versus pre-pandemic volume in Q3FY2020). (IGL/MGL/Gujarat Gas) and prefer IGL/MGL in this sector as the policy support will generate income growth. There will be growth and valuations will improve.”
“Adjustable policies and possible capping of domestic gas price will improve volume growth visibility (supported by widening the price gap between CNG vs petrol) and with continued margin recovery for CGD and higher exposure to CNG/D-PNG. We have increased our PT for IGL/MGL to Rs. 480/Rs. 980 As we increase our PE multiplier, margin overhang (high gas cost and low availability of APM gas) may be overcome due to improved policy support. We prefer IGL/MGL in the CGD space as earnings visibility is expected to improve and valuations are attractive (IGL trades at 18.6x FY24E EPS and MGL 11x FY24E EPS),” he added.
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Indraprastha Gas Limited
Research analysts said, “The recent government’s decision to increase gas allocation for CNG and domestic PNG points to a favorable policy framework for CGD as it is likely to account for 15% of natural gas’s share of India’s energy mix by 2030 versus the government.” The higher domestic gas allocation of 94 per cent to CGD is a near-term relief for CGD and more policy measures like capping the domestic gas price at the current level. Continued policy support for CGD will help sustain high volume growth and maintain/improve existing margins for IGL.”
He further added that IGL’s valuation of 20.5x/18.6x FY23E/FY24E EPS is attractive, supported by strong demand in the existing NCR region and ramp-up of new Geographical Areas (GAs) of Rewari, Karnal and Gurugram. , A potential capping of domestic gas price to current levels will be a significant re-rating trigger for CGD as it will improve confidence on both double-digit volume growth and continued strong margins. We maintain buy on IGL with increased PT of Rs. 480 As we deliver higher PE multiples, the given accommodative policy framework will improve volume/earnings growth visibility.”
“The government aims to increase the share of gas in India’s energy mix to ~15% (from 6% currently) by 2030 and the emphasis on reducing air pollution in the NCR region is a key factor for strong growth in CNG and domestic PNG volumes. Provides regulatory push.In addition to IGL, development of new GAs of Rewari, Karnal and Gurugram and the recent award of three new GAs in the 10th round of CGD bidding will increase volume beyond its existing areas of operations. The company’s margins are expected to remain strong given the favorable economics of CNG vs. Petrol. Also, the recent sharp volume recovery from pre-COVID levels with respect to the double digit earnings growth outlook on volumes strengthens faith in me,” Sharekhan said in a report.
Mahanagar Gas Limited
Sharekhan said in a note that “the recent government’s decision to increase gas allocation for CNG and domestic PNG indicates a favorable policy framework for CGD as the government’s target of 15% of natural gas in India’s energy mix is met.” This position will be critical to achieve. By 2030 versus only 6% at present. Higher domestic gas allocation of 94 per cent to CGD is a relief in the near future and gives hope for more measures like capping domestic gas prices at current levels Continued policy support for CGD will help sustain high volume growth and maintain/improve existing margins for MGL.”
“Adjustable government policies and possible capping of domestic gas price will improve volume growth visibility (supported by widening the price gap between CNG vs petrol) and sustained margin recovery for MGL. Thus we increase our PT for MGL to Rs. 980, as we enhance our PE multiple correction policy while maintaining our buy rating. MGL is the cheapest CGD stock with an attractive valuation of 11x FY24E EPS at 27% discount to its 3-year average PE multiple,” said analysts at the brokerage.
“MGL’s long-term volume growth outlook is in line with the government’s objective of increasing the share of gas in India’s energy mix to ~15% by 2030 (from 6% currently) and a regulatory framework for reinforcing the emphasis on reducing air pollution. Provides push. Increase in CNG and Domestic PNG volumes for MGL. The development of Raigad GA (0.5 mmscmd volume potential) will further enhance the volume growth prospects of the company. However, lower APM gas allocation, higher spot LNG price, and higher dealer commission demand by OMCs will remain very high on margins. MGL is the cheapest CGD stock.
Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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