CD Equisearch's research report on Mahanagar Gas
As per IEA, global natural gas consumption witnessed a strong recovery in 2021 with an estimated rise of 4.5% year-over-year. This growth was driven by varied factors ranging from a solid rebound in economic activities post easing of lockdowns in early 2021, rising consumption in the industrial and power generation sectors and a succession of extreme weather events that led to higher than expected heating and power generation needs. However, softening of the economic recovery in the latter part of the year coupled with a steep rise in spot gas prices in Europe and Asia prompted by a tightening global gas market significantly slowed down the momentum. The Ukraine-Russia war that broke out on February 24 has triggered a major energy crisis and added further pressure to an already tight natural gas market. This geopolitical crisis is largely expected to have wider repercussions for the global economy that will negatively affect economic growth and fuel inflation through higher commodity prices.
Outlook
However, the issue of oil marketing companies (OMCs) seeking higher trade discounts on CNG has been an overhang for quite a while given the fact that MGL’s dependency upon OMC is pretty high as the majority of CNG volume comes through OMC fuel stations. Moreover, the risk of market share being lost to EVs cannot be ignored. Weighing odds, we advise a ‘Buy’ rating on the stock with revised target of Rs. 1012 (previous target: Rs 1490) based on 12x FY23e earnings.
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