Mahanagar Gas slumps 16% as Citi downgrades stock to 'sell'

Shares of Mahanagar Gas plunged 15.7 per cent to Rs 1,318.9 apiece on the BSE in Wednesday's intraday trade after global brokerage Citi downgraded the stock to 'Sell' from 'Buy'.

According to reports, the brokerage believes city gas distribution companies, such as MGL, stand vulnerable to regulatory changes, wherein the government would want consumers to benefit from sectoral reforms.

"Oil Minister Hardeep Puri has been emphasising that the full benefits of natural gas sector reforms haven't reached end customers. As the government stays "committed" to ensuring compliance by city gas companies for affordable rates, Mahanagar Gas' margins are more susceptible to any drastic steps undertaken by the government in the future due to the premium in margins it enjoys," the brokerage said.

 

At a recent industry event, Puri said efforts to end monopolies by the Petroleum and Natural Gas Regulatory Board are ongoing. Thus, despite the legal challenges, city gas firms are making strong profits.

"The Petroleum and Natural Gas Regulatory Board announced in February 2024 that the board will be setting up a high-level expert committee to review the existing regulatory framework. This creates a potential overhang on the sustainability of high margins for city gas distributors," Citi added.

The brokerage has cut MGL's target price to Rs 1,405 from Rs 1,480. 

During the October-December quarter of FY24, Mahanagar Gas reported a consolidated net profit of Rs 317.18 crore, up 84 per cent from Rs 172.07 crore recorded in the year-ago period amid lower gas costs.

Its earnings before interest, tax, depreciation and amortisation (Ebitda) surged 72.3 per cent Y-o-Y to Rs 496.76 crore.

The company's CNG volumes grew 1.92 per cent quarter-on-quarter at 242.17 million scm, while PNG (domestic) and PNG (industrial/ commercial) volume increased 7.97 per cent and 1.52 per cent, respectively, Q-o-Q.

Separately, the CGD has reduced the price of compressed natural gas (CNG) to Rs 73.50/Kg effective March 6, 2024. 

"Due to reduction in gas input cost MGL is pleased to announce reduction in CNG price by Rs 2.5/Kg in and around Mumbai," the company said. This reduction in CNG price would help to increase the consumption of natural gas in transportation segment, which is a step towards a cleaner and greener India, it added.

Earlier in February, Antique Broking had downgraded MGL to 'Hold' from 'Buy' on the back of limited upside in the stock. Over the past one year, shares of the company has rallied over 30 per cent as against a 22 per cent rise in the benchmark S&P BSE Sensex. 

The stock hit a record high of Rs 1,580 on Tuesday, March 5, 2024, and an all-time low of Rs 492 in July 2026.