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Mahanagar Gas has announced a share purchase agreement for acquiring 100% stake in private CGD player Unison Enviro Pvt Ltd for a cash consideration of | 531 crore. With this acquisition MGL would mark its entry into newer geographical areas such as Ratnagiri, Latur, Osmanabad, Chitradurga and Davanagere. This will enable MGL to scale up its CGD network, enabling the company to cater to a larger customer base.

MGL’s entry into newer GAs

* As of Q3FY23, sales volume of MGL were at 3.4 mmscmd, with a presence across Mumbai, Thane and Raigad districts

* Unison Enviro, an Ashoka Buildcon subsidiary, is operational in Maharashtra (Ratnagiri, Latur and Osmanabad) and Karnataka (Chitradurga, Davanagere) with sales volume of ~0.1 mmscmd as per our estimates. Post this acquisition MGL will be able to supply CNG and PNG to customers in these regions and increase its volumes

* MGL is expected to acquire the 100% stake in the company for | 531 crore. Gross debt of Unison Enviro as of FY22 was at | 113 crore

*  Details of Unison Enviro’s financials for FY22 are as follows: Turnover: | 89.4 crore; networth: | 83.4 crore; net loss: | 24.9 crore

Valuation and Outlook

Inorganic entry into newer geographical areas marks a turning point for MGL, which was earlier limited to specific GAs. It would also help to bridge its valuation gap with other CGDs, due to probability of acquisition of newer growth areas. The acquisition is of strategic importance to MGL. We maintain our BUY rating on the company with a target price of | 1180 i.e. ~14x P/E on FY25E EPS.

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