Nomura has reiterated its positive view on the city gas distribution (CGD) sector, stating that a potential reduction in tax rates — replacing the current 15% VAT with a 2% Central Sales Tax (CST) — could significantly improve profitability for key players Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL).
Assuming CGD companies retain the full benefit of the tax reduction, Nomura estimates an EBITDA impact of ₹1.36 per standard cubic metre (scm) for IGL and ₹0.36 per scm for MGL. This translates into an absolute EBITDA benefit of 22% for IGL and 4% for MGL. The brokerage has maintained a neutral rating on IGL with a target price of ₹225 per share and a buy on MGL with a target of ₹1,580.
Nomura said it prefers MGL due to its attractive valuation, leading volume growth, and stronger margin profile. It added that any tax rationalisation would be a major profitability driver for the sector, enhancing long-term investor sentiment toward city gas distributors.
Disclaimer: The views and recommendations above are those of Nomura. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.
