Buy Mahanagar Gas Ltd for the Target Rs 1390 by Motilal Oswal Financial Services Ltd
D-PNG growth inflecting sharply; margin headwinds manageable
Mahanagar Gas’ (MAHGL) stock has corrected 13% over the last three and a half months, primarily due to elevated input gas costs (Brent at USD102/bbl in 1QFY27’td vs USD69/bbl in FY26; Spot LNG at USD18/mmbtu in 1QFY27’td vs USD12/mmbtu in FY26) and rupee depreciation (11% YoY in 1QFY27’td), which contracted margins. While margin pressure continues to persist, improving D-PNG conversion momentum (up 50% vs pre-war levels), easing execution bottlenecks, sustained CNG volume growth, likely further INR2-3/kg CNG price hikes (INR5/kg CNG price hikes already taken post-war), and stronger I&C realizations should support earnings going forward. At ~10.8x FY28E P/E (near mean -1 S.D.), valuations appear attractive, offering scope for re-rating as margin pressures ease.
D-PNG growth seeing structural acceleration; execution bottlenecks easing
* Daily new D-PNG connections increase by ~50%: MAHGL is witnessing a sharp improvement in D-PNG conversion momentum, with daily connections increasing to 1,000-1,200/day in May’26 versus 700-800 earlier. The company added 40k+ D-PNG connections in May’26 alone and expects 120k-150k additions over the next four months (3.2m connections in FY26).
* Regulatory push + easing execution driving faster D-PNG adoption: A key driver remains the government’s push to curb LPG usage in areas with existing PNG infrastructure, with LPG databases now being mapped with CGD connection data. Further, pipeline laying approvals have materially eased with deemed approvals now available within 7-10 days in many areas, lowering execution delays and road reinstatement costs.
* We expect 9% volume CAGR over FY26-28: We believe that D-PNG growth could trend above earlier expectations, while CNG volumes are expected to sustain high single-digit growth, supported by vehicle additions and recovery in bus additions
Valuations inexpensive at mean -1 S.D.
* MAHGL currently trades at ~10.8x FY28 P/E. With an estimated PAT CAGR of 8% over FY26-28, healthy FY28 RoCE of ~13.2%, and a strong balance sheet with FY28E net debt/equity of ~0.1x, we believe valuations are inexpensive.
* We value MAHGL at 14x Dec’27 P/E, resulting in a TP of INR1,390. We have a BUY rating.
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