Axis Direct maintains a 'Buy' on Mahanagar Gas Ltd, setting a target price of Rs 1,331. The brokerage sees structural growth driven by regulatory changes and expansion plans, despite Q4FY26 margin pressures.
Mahanagar Gas Ltd: Axis Direct Reiterates Buy on Growth Outlook
Target Price: Rs 1,331
Potential Upside: 10%
Reader Takeaway: Regulatory easing and expansion plans support FY27 growth, countering temporary margin pressure.
What just happened
Axis Direct has maintained a 'Buy' rating on Mahanagar Gas Ltd (MGL) with a target price of Rs 1,331, indicating a 10% potential upside from the current market price of Rs 1,210. The brokerage highlights that while Q4FY26 results were impacted by an external supply shock, leading to lower EBITDA/scm, the company is poised for structural growth in FY27. This is supported by favorable regulatory changes and planned expansion.
Why this matters
For investors, this reaffirms confidence in MGL's long-term prospects. The reduction in road reinstatement charges and the introduction of deemed permissions by regulators significantly ease infrastructure rollout. Combined with expected double-digit volume growth in PNG segments and a Rs 1,200 Cr capex plan for network expansion, MGL is well-positioned for future expansion. Management's stated EBITDA/scm floor of Rs 8 indicates confidence in margin recovery as gas prices normalize.
The backstory
MGL's Q4FY26 performance saw its EBITDA/scm fall to Rs 6.2, with gas costs rising to Rs 35.2/scm due to the West Asia crisis. This highlights the company's sensitivity to global energy market volatility. However, regulatory de-risking has been a significant positive development, with charges reduced by over 50%.
What changes now
The brokerage expects MGL to achieve Net Sales of Rs 8,240 Cr and Net Profit of Rs 841 Cr in FY26, with projections for Rs 9,823 Cr in Net Sales and Rs 804 Cr in Net Profit for FY27E. The focus shifts to network expansion and potential clean-energy initiatives like LNG for transport.
Risks to watch
The primary risks remain supply chain volatility and geopolitical factors affecting global gas prices and RLNG availability. Continued sensitivity to HH and Asian gas price fluctuations could impact margins, despite management's efforts to set a floor.
Peer comparison
While specific peer data isn't provided in the filing, MGL's expansion into new territories (GA2, GA3, Unison) and exploration of clean energy suggest a proactive approach to market share and diversification within the city gas distribution sector.
Context metrics (time-bound)
- Current Market Price: Rs 1,210
- Target Price: Rs 1,331
- Potential Upside: 10%
- FY26 Net Sales: Rs 8,240 Cr
- FY26 Net Profit: Rs 841 Cr
- FY27E Net Sales: Rs 9,823 Cr
- FY27E Net Profit: Rs 804 Cr
- FY28E Net Sales: Rs 10,651 Cr
- FY28E Net Profit: Rs 849 Cr
- Planned Capex FY27: Rs 1,200 Cr
- Q4FY26 EBITDA/scm: Rs 6.2
- Q4FY26 Gas Cost/scm: Rs 35.2
- Management EBITDA/scm floor: Rs 8
What to track next
Investors should monitor the progress of MGL's network expansion in the new territories and keep an eye on the stability of gas sourcing costs and RLNG prices globally.