MGL rides PNG adoption wave, analysts see further upside

ET Intelligence Group: Shares of Mahanagar Gas (MGL) have rallied 23% over the past three months, driven by expectations of higher sales volume and increased customer acquisition helped by the government’s push to accelerate the adoption of piped natural gas (PNG) amid global supply chain disruptions. The company aims to increase the PNG customer base by 20% from the current 20 lakh users in the near term. This will likely boost PNG consumption by 12%. Despite the sharp run-up, the stock trades at a P/E multiple of 13.7, a modest premium to its historical valuation of 12.5.

In late March, the central government mandated that households with access to piped gas infrastructure must transition from LPG (liquefied petroleum gas) to PNG within three months. This is expected to accelerate MGL’s volume growth to double digits from the current single-digit pace. It reported 8.3% volume growth for FY26. While its core compressed natural gas (CNG) business, which accounted for 72% of revenue in FY26, will continue to grow at a steady pace, MGL management expects overall volume growth to be driven by the PNG segment. The company aims to add between four-five lakh PNG customers in the near term.

The company is willing to sacrifice near-term profits to fast-track infrastructure deployment and drive volume growth. The strategy is intended to maximise market penetration while prices of alternative fuels like petrol, diesel, and LPG remain volatile. MGL has provided a capex guidance of ₹1,200 crores for FY27 to expand the network. However, it faces execution risk as pipeline laying on public roads is expected to experience a temporary slowdown during the monsoon months. Additionally, a shortage of labour, plumbers, contractors and material may also affect execution. With all city gas distribution companies in expansion mode, MGL is competing with peers for the same pool of skilled workers.

According to brokerages, MGL’s stock valuation looks attractive given future earnings growth. Motilal Oswal Financial Services expects 9% overall annual volume growth over FY26-28. “At around 10.8x FY28E P/E, valuations appear attractive offering scope for re-rating as margin pressures ease,” the broking firm said in a report.