| Company | Value | Change | %Change |
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IGL shares were upgraded to ‘Add’ from ‘Reduce,’ with a 17% increase in the price target to ₹450, suggesting a 7% potential upside. MGL shares were also upgraded to ‘Buy’ from ‘Add,’ with a 21% higher price target of ₹1,700, implying a 34% upside.
Emkay noted that the price target reflects a 15 times target multiple, which it considers reasonable, as further re-rating depends on volume growth and favorable macro conditions. The upcoming Maharashtra Natural Gas (MNGL) IPO could boost IGL’s valuation, though the holdco discount may impact it later.
The government has reversed a significant portion of the Administered Price Mechanism (APM) gas allocation cut for CNG. Starting January 16, 2025, CNG’s share of the volume will increase to 51%, up from 37%, as per filings by IGL, MGL, and Adani Total Gas.
This reversal provides relief to CNG sellers, though it was an unexpected move after events like the rumored inclusion of gas under GST and diversion of some APM gas due to LPG shrinkage, according to Emkay Global.
Emkay estimates that IGL and MGL may need to increase CNG retail prices by ₹4-5 and ₹2-3 per kg, respectively, to restore margins before the October-November 2024 allocation cut.
The third quarter is expected to be weak for both IGL and MGL, but the fourth quarter of FY25 could see improvement, driven by the partial reinstatement of the APM allocation cut and potential price hikes. CGD companies could return to normative margin levels in FY26, supported by favorable LNG sourcing.
Emkay has raised FY26E/27E EBITDA/scm for IGL and MGL to ₹7/10 from ₹5.7/8.3, with a 20-25% increase in consolidated EPS.
Out of the 36 analysts that have coverage on IGL, 16 of them have a ‘Buy’ rating on the stock, six of them say ‘Hold’, while 14 of them have a ‘Sell’ rating on the stock. On the other hand, out of the 32 analysts that have coverage on MGL, 14 of them have a ‘Buy’ rating. The other six have a ‘Hold’ rating while 12 others have a ‘Sell’ recommendation.
Shares of IGL are currently trading 0.57% lower at ₹417.10, while those of MGL are off the highs of the day, trading 0.067% higher at ₹1,271.50.
