Brokerages Divided on Mahanagar Gas Post Q2 Results Amid Margin Pressures

Mahanagar Gas Limited (MGL) announced its second-quarter financial results for FY26, revealing a significant 40 per cent quarter-on-quarter decline in net profit to ₹191.3 crore. This was primarily driven by near-term margin pressures, as Earnings Before Interest, Taxes, Depreciation, and Amortization (Ebitda) fell 32.5 per cent quarter-on-quarter to ₹338 crore, with Ebitda margins shrinking from 24 per cent to 16.5 per cent. Despite these headwinds, the company's medium-term volume growth trajectory remains intact.

Brokerage firms have offered diverging opinions on MGL shares following the results. Motilal Oswal Financial Services (MOFSL) reiterated its 'Buy' rating with a target price of ₹1,700 per share. MOFSL expects robust volume growth of 11 per cent CAGR over FY25-28 and foresees Ebitda per Standard Cubic Meter (scm) between ₹8.7–9.2. They cited initiatives like OEM collaborations for CNG vehicles and price discounts for new customers as growth drivers. However, MOFSL has marginally reduced its Ebitda/scm estimates for FY26-28, leading to a 2-3 per cent cut in Ebitda estimates and a 5-8 per cent reduction in Profit After Tax (PAT) estimates.

Conversely, Nuvama Institutional Equities maintained its 'Reduce' rating with a target of ₹1,178. Nuvama pointed to uncertainty from ad-hoc government policies and noted that MGL's management cut its FY26 Ebitda margin guidance to ₹8–9.5/scm from ₹9–9.5/scm. Reasons cited for this reduction include a weaker rupee, lower prices of alternate fuels, the margin-dilutive UEPL merger, and an inferior gas sourcing mix. Nuvama's analysis showed Q2 Ebitda missed estimates by 13-14% due to lower Ebitda per scm, partially offset by higher volumes.

JM Financial maintained an 'Add' rating with an unchanged target of ₹1,415. They believe the recent stock price correction has largely accounted for concerns regarding structural reductions in APM gas allocation. JM Financial highlighted MGL's potential for 7–8 per cent volume CAGR over the next 3–5 years, although their Ebitda per scm was below expectations.

Impact: This news significantly impacts investor sentiment and the stock price of Mahanagar Gas due to the conflicting outlooks from major brokerages and the announcement of reduced margins and guidance. The differing views suggest potential volatility. Rating: 7/10

Difficult terms: * Ebitda: Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance. * scm: Standard Cubic Meter. A unit for measuring the volume of natural gas. * CAGR: Compound Annual Growth Rate. The average annual growth rate over a specific period. * OEM: Original Equipment Manufacturer. A company that produces parts or components that are then used in another company's final product (in this case, vehicle manufacturers). * PAT: Profit After Tax. The profit remaining after all expenses and taxes have been deducted. * APM Gas: Administered Pricing Mechanism gas. Natural gas whose price is set or regulated by the government. * UEPL: Refers to Ujjwala Ensysco Private Limited, a wholly-owned subsidiary of Mahanagar Gas that has been amalgamated. * Rupee: The official currency of India. * Alternate Fuels: Fuels like petrol, diesel, or electricity that can be used as substitutes for natural gas. * Gas Sourcing Mix: The variety of sources from which a company obtains its natural gas supply. * CNG: Compressed Natural Gas. * PNG: Piped Natural Gas. * Amalgamation: The process of combining two or more companies into a single entity.