Stock Target: Gas stock with an upside potential of 34% by Axis Direct

Synopsis: Axis Direct has initiated a Buy with a ₹1,540 target, implying nearly 34% upside from ₹1,150. Margins improved to ₹8.3/scm despite higher Henry Hub prices, while volumes grew 7% YoY to 4.62 mmscmd. Management guides double-digit growth ahead with ₹1,200 crore FY27 capex planned.

India’s LPG/CNG/PNG/LNG fuel supply industry is at the core of the energy transition towards clean energy, powering homes, vehicles, and industries. LPG sales for the year ended at 31.2 million metric tonnes (up by 5.1% YoY), while Natural Gas consumption has also risen by approximately 9%, clocking around 67 BCM for the period (Apr-Feb). Notably, the number of CNG vehicles has climbed to 8.2 million.

Mahanagar Gas Limited shares closed 2.53% lower at ₹1,150, with a market capitalisation of ₹11,363 crore. The stock remains significantly below its 52-week high of ₹1,586, suggesting potential recovery scope. Despite the recent decline, improving sentiment and sector momentum could support gradual upside ahead.

Brokerage Recommendation

Axis Direct, one of the well-known brokerages in the country, initiated a ‘Buy’ call on this gas stock with a target price of Rs 1,540 per share, implying an appreciation of around 34 percent from Thursday’s closing price of Rs 1,150.30 per share.

Rational

According to the brokerage, despite higher Henry Hub gas prices, EBITDA per scm rose 4% sequentially to  Rs 8.3, although it remained slightly lower year-over-year. The improvement was driven by a better sourcing mix, with costlier HH volumes partly replaced by HPHT and spot gas, alongside benefits from lower Brent-linked prices.

Management highlighted that a 20-cent saving from softer Brent prices more than offset the 1.4-cent rise in Henry Hub costs. Additionally, the full impact of the September 2025 price hike was felt this quarter, lifting overall EBITDA by 30 paise per scm and supporting overall margin expansion.

Additionally, Volume performance remained steady, with Q3FY26 sales at 4.62 mmscmd, up 7% year-on-year. Growth was led by CNG and domestic PNG segments, while industrial volumes saw minor sequential moderation. The company has guided for 10% volume growth in FY26, supported by stable demand and sourcing diversification.

MGL continues to demonstrate steady momentum, guiding for double-digit volume growth in Q4FY26 and FY27, ahead of the 9% YoY growth reported in 9MFY26. While margins stood at  Rs 9.5/scm during 9MFY26, Q3 moderated to  Rs 8.3/scm. Management expects margins to stabilise within  Rs 8–9/scm, supported by calibrated pricing actions and improved realisations.

To counter elevated Henry Hub prices, the company implemented a  Rs 0.50/kg CNG hike and increased reliance on Brent-linked contracts. Flexible take-or-pay arrangements and hedging strategies further support margin resilience. With FY27 capex planned at  Rs 1,200 crore toward network expansion, MGL remains focused on strengthening its distribution footprint.

Mahanagar Gas Limited (MGL) is one of the leading city gas distribution companies in India, with the primary business segments operating in the Mumbai region and the surrounding areas. The company distributes compressed natural gas (CNG) as a transportation fuel as well as piped natural gas (PNG) for domestic, commercial, and industrial use.

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