City gas distributors' MGL, IGL rally 6% on healthy volume growth hopes

Shares of city gas distributors (CGDs) companies -- Mahanagar Gas (MGL) and Indraprastha Gas (IGL) -- rallied up to 6 per cent on the BSE in Tuesday's intraday trade, in an otherwise subdued market, on expectations of strong volume growth.

Shares of MGL hit a record high of Rs 1,921, surging 6 per cent in the intraday trade. The stock surpassed its previous high of Rs 1,911.95 touched on September 5, 2024. Shares of IGL, too, soared 6 per cent to Rs 559.65. The stock had hit a record high of Rs 570.60 on September 2.

Thus far in the calendar year 2024 (CY24), MGL has zoomed 61 per cent, while IGL has rallied 33 per cent. In comparison, the BSE Sensex rose 15 per cent during the period.

 

According to reports, global brokerage UBS has recommended 'Buy' ratings on IGL and MGL with target prices of Rs 700 per share and Rs 2,400 per share, respectively.

The brokerage firm expects IGL's volume growth trajectory to improve from about 4 per cent year-on-year (Y-o-Y) in FY24 to 8.2 per cent compound annual growth rate (CAGR) in FY24- 27. For MGL, the brokerage firm has raised FY25-27 total volume expectations by 7-11 per cent, according to reports.

Meanwhile, analysts at HDFC Securities anticipate the accelerated infrastructure rollout by MGL in existing and new geographical areas (GAs), the acquisition of Unison Enviro's (UEPL) three GAs, competitive Compressed Natural Gas (CNG) price vs petrol/diesel, and robust CNG vehicle registrations data should support strong volume growth of 10.4 per cent CAGR over FY24-26E.

From supplying Piped Natural Gas (PNG) to around 1.69 million domestic customers and CNG to around 1 million vehicles in and around Mumbai, Navi Mumbai, Thane and Raigad districts, the UEPL acquisition has increased MGL's reach to Ratnagiri, Latur and Osmanabad districts of Maharashtra and Chitradurga and Davanagere districts of Karnataka.

"Moreover, the company is now equipped to provide Liquified Natural Gas (LNG) for long haul trucks, thereby addressing the need for limiting emissions and contributing towards national net zero initiative. The company also plans to set up LNG filling stations across the country, leveraging the strength of a joint venture (JV) company, Mahanagar LNG Private Limited (MLPL)," MGL had said in its FY24 annual report.

There's a recent launch of CNG two-wheeler with Bajaj Auto on July 5th, and also there has been an announcement by TVF for introducing CNG scooters around the first half of 2025. It has opened up a new set of customers for CGD companies, and MGL sees it as another volume growth opportunity considering the large number of two wheelers in the country, the company said.

As for IGL, analysts at Geojit Financial Services said, higher sales volume from expansion and penetration of CNG into the two-wheeler segment should continue to help improve the IGL's earnings potential.

"Also, IGL's initiatives in the industrial and commercial sectors to increase sales and improve domestic PNG connections should contribute to volume growth," they said in their Q1FY25 result update.

Meanwhile, brokerage firm Sharekhan anticipates IGL's growth driven by continued infrastructure development and increased market penetration, along with the growing contribution from LNG, which offers higher margins. The company aims to increase LNG's share to 15-20 per cent of total revenue. Additionally, entry of two-wheeler manufacturers into CNG space will boost consumption, the brokerage firm said in its result update.