Gas distribution stocks in focus; Indraprastha Gas hits new high

IGL, MGL and Gujarat Gas were up in the range of 4% to 6% on the BSE in intra-day trade

Shares of city gas distribution companies (CGD) such as Indraprastha Gas (IGL), Mahanagar Gas (MGL) and Gujarat Gas have rallied by up to 6% on the BSE in intra-day trade in an otherwise subdued market.

IGL, the largest gainer among the CGD pack, hit a new high of Rs 332, up 6% on the BSE. MGL and Gujarat Gas were up 4% at Rs 1,151 and Rs 878, respectively, in intra-day trade. On comparison, the S&P BSE Sensex was down 0.09% at 33,693 at 10:40 AM.

Analysts at Dolat Capital Market, retained ‘accumulate’ rating on IGL with target price of Rs 368 per share.

“With volume growth outlook getting better driven by new areas and increase in volume potential of existing regions and confirmed availability of domestic gas for CNG and Domestic PNG segment, we believe that profitability growth can be in double digits. CUGL (Central UP Gas) and MNGL (Maharashtra Natural Gas) are going strong with expected profit growth in the range of around 15%,” the brokerage firm said in a report.

Analyst at Nirmal Bang Equities initiate the coverage on IGL with ‘buy’ rating and target price of Rs 394.

“Our bullish call is based on earnings growth because of growth in sales volume on strong government support for making a shift to natural gas as a preferred fuel. The recent favourable judgement from the Supreme Court banning some alternate fuels because of environmental concerns, monopoly situation with high entry barriers, strong balance sheet with a net cash position and strong free cash flow to the firm, despite rising capex,” the brokerage firm said in report.

According to CARE Ratings, the prices of natural gas tend to rise in the winter months as the demand for heating of homes increases which puts an upward pressure on the prices. Hurricanes and other severe weather conditions can affect the supply of natural gas which has an impeding effect on the prices.

Overall the sales volume of CNG has been increasing on a y-o-y basis. The growth in sales is due to the increase in sales in the states of Gujarat, Uttar Pradesh, Haryana and West Bengal, the rating agency said.