IGL And MGL Shares Gain As CLSA Sees 'Return To Good Times'
Return of pricing power will bring back earnings stability and growth similar to FY16–20, making IGL and MGL attractive, says CSLA
Shares of Mahanagar Gas Ltd. and Indraprastha Gas Ltd. gained as CLSA reiterated and maintained a 'buy' rating on the stocks, respectively, citing the return of pricing power.
A 24% fall in the gas price from April 1 and comfort around the new allocation policy for deep-water gas combined with cooling-off LNG prices should ensure robust margins and bring down input costs for retail city gas players such as IGL and MGL.
This shall work in favor, even as they keep pricing at attractive discounts to competing fuels, according to a note by CLSA. CLSA sees this discount as necessary to incentivise CNG adoption and drive volume growth.
This should bring back the discount of CNG to diesel to attractive levels of 25%–34%, even if IGL and MGL choose to keep margins at near record annual levels, as per CSLA's estimates.
"The return of pricing power will bring back earnings stability and growth similar to FY16–20 and once again make Indraprastha Gas Ltd. and Mahanagar Gas Ltd. attractive," the note stated.
With acknowledgment of the threat from EVs, CSLA raised the target price for IGL from Rs 420 to Rs 585 and upgraded the rating from O-PF to Buy on a 39% upside. It also increased earnings per share estimates for IGL from 6% to 15%.
Helped by a lower growth differential due to the recent acquisition, the note valued MGL at a smaller 25% discount to IGL, pushed the target price from Rs 1,020 to Rs 1,260, and reiterated a Buy rating on the company.
Share Price of Mahanagar Gas
Shares of the company gained as much as 1.68% to Rs 986.25.
Out of the 36 analysts tracking the company, 28 maintain a 'buy' rating, 5 suggest 'hold,' and 3 recommend a 'sell' on the stock, according to Bloomberg data. The 12-month average consensus price target implies an upside of 5.9%.
The total traded volume so far in the day was 1.6 times its 30-day average trading volume.
Share Price of Indraprastha Gas
Shares of the company gained as much as 3.02% to Rs 439.8.
Out of the 38 analysts tracking the company, 31 maintain a 'buy' rating, four suggest 'hold,' and three recommend a 'sell' on the stock, according to Bloomberg data. The 12-month average consensus price target implies an upside of 19.8%
The total traded volume so far in the day was 2.6 times its 30-day average trading volume.