Jefferies has maintained an ‘Underperform’ rating on Mahanagar Gas Ltd (MGL), citing cost pressure concerns amid a change in gas allocation dynamics. The brokerage has set a target price of ₹1,220, while the stock is currently trading at ₹1,312.40.
According to the report, the Administered Price Mechanism (APM) gas allocation to MGL has been cut by 18%, which translates to a 26% reduction in availability for CNG volumes. This shortfall is now being filled by new well gas, which comes at a 30% premium to the cost of APM gas, significantly impacting input costs.
Despite recent hikes in CNG and PNG prices, Jefferies believes MGL will not be able to pass on the full extent of the increased feedstock cost to consumers. This mismatch is expected to weigh on the company’s profit margins.
While Jefferies remains confident about MGL’s volume growth trajectory, it has built in flat earnings per share (EPS) over FY25–27, reflecting the squeeze on profitability. The report indicates that unless there’s a further upward revision in retail prices, margin compression could persist, capping near-term upside for the stock.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
