UBS cuts Mahanagar Gas stock target to INR1,650; keeps Buy rating

On Thursday, UBS analyst Rwibhu Aon (NYSE:AON) revised the price target for Mahanagar Gas Limited (MAHGL:IN), reducing it to INR 1,650 from the previous INR 1,850 while maintaining a Buy rating on the stock. The adjustment comes as the analyst anticipates cost reductions in feedstock gas due to declining benchmark energy prices, changes in domestic gas allocation policy, and the strengthening of the Indian Rupee against the US Dollar.

The firm continues to project an 8.9% compound annual growth rate (CAGR) in volume over the fiscal years 2025 to 2028, reflecting consistent performance in the Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) segments. Recent CNG price increases are expected to help Mahanagar Gas expand its margins from the second half of fiscal year 2025’s subdued levels to the levels guided by management.

Despite maintaining gross spread projections, UBS has adjusted its earnings before interest, taxes, depreciation, and amortization (EBITDA) per standard cubic meter (scm) downward by 3%, resulting in an EBITDA forecast of INR 10.0 to 10.5 per scm for the fiscal years 2026 to 2028. The firm has also increased its capital expenditure estimates to reflect the company’s strong infrastructure expansion and business diversification efforts, as outlined by management guidance.

This revised capital expenditure forecast and a 4-6% reduction in earnings projections for the fiscal years 2026 to 2028 have led to the lowered price target. The new target is based on a 13.7 times the projected earnings for fiscal year 2027. The analyst’s commentary highlights the potential for Mahanagar Gas to improve its financial metrics in the coming years, despite the near-term adjustments in capital expenditures and earnings estimates.

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