Mahanagar Gas top pick among CGDs, Gujarat Gas least preferred: Nomura

Nomura on CGDs: Japan-based brokerage Nomura has reiterated its bullish view on Mahanagar Gas Ltd (MGL), upgrading the stock to ‘Buy’ from ‘Neutral’ and naming it the top pick among city gas distributors (CGDs). The upgrade is driven by MGL’s robust volume growth outlook, limited exposure to the volatile industrial and commercial (I&C) segment, and attractive valuation. The target price has also been raised to ₹1,680 from ₹1,345 earlier.

 

“We prefer Mahanagar Gas (MAHGL IN, Buy) due to its highest expected volume growth among peers, limited exposure to volatile industrial and commercial (I&C) segments, and attractive valuation compared to peers. MGL is also better placed than IGL on EV-related regulatory challenges, in our view,” said Bineet Banka, research analyst at Nomura, in a note dated June 16.

 

In contrast, Nomura has maintained a ‘Reduce’ rating on Gujarat Gas Ltd (GGL), citing intense competition in the I&C space, subdued volume growth prospects, and constrained pricing power. The target price for GGL has been cut to ₹406 from ₹470.

 

For Indraprastha Gas Ltd (IGL), Nomura retained a ‘Neutral’ rating, with a revised target price of ₹210, up from ₹199.  On the bourses, around 10:15 AM, Mahanagar Gas was trading 1.68 per cent higher at ₹1,413; Indraprastha Gas was down 0.38 per cent at ₹211.45; and Gujarat Gas was trading 0.45 per cent higher at ₹480.40.

 

While the recent 18-20 per cent cut in Administered Price Mechanism (APM) gas allocation has emerged as a short-term headwind for CGDs, Nomura noted that companies have already initiated moderate price hikes of over 2 per cent in both the compressed natural gas (CNG) and domestic piped natural gas (PNG) segments to offset the shortfall. 

 

Among the three key players, Indraprastha Gas Ltd (IGL) has been most affected due to its high CNG exposure (about 73 per cent of sales). MGL, with a relatively balanced portfolio, is seen managing the disruption more effectively.

 

GGL, on the other hand, has limited exposure (about 44 per cent) to the priority sectors impacted by APM cuts but faces its own set of challenges. Its considerable presence in the I&C segment (about 56 per cent of total volumes) is under pressure from low-cost propane, especially in Gujarat’s Morbi ceramics cluster. With CNG adoption in new vehicles already high at around 31 per cent in the state—compared to 22 per cent in Delhi and Maharashtra—GGL also has limited headroom for growth in the CNG business.  Catch Stock Market Updates Today LIVE

State EV policies to weigh on CNG growth

 

Nomura flagged policy developments around electric vehicles (EVs) as another important trend impacting the sector. While Delhi and Mumbai continue to tighten their EV policies to combat air pollution, MGL is seen as better positioned than IGL to navigate this transition. Mumbai's comparatively lower air pollution levels, combined with a policy focus that may initially target liquid fuels over CNG, could offer a temporary reprieve for MGL. 

 

Moreover, MGL’s representation in the Maharashtra High Court-monitored EV committee indicates its proactive approach, with the management optimistic about CNG’s role under the new state EV policy.

 

Apart from that, a key catalyst across the sector, analysts said, could be the inclusion of natural gas under the Goods and Services Tax (GST) regime. Currently, gas is taxed under a patchwork of indirect levies like state VAT, central excise, and sales tax. Bringing gas under GST would streamline taxation, reduce cost burdens, and enable industrial customers to claim input tax credit—especially beneficial in price-sensitive regions like Morbi, where propane already enjoys GST benefits. Nomura believes GGL stands to gain the most from this reform, given its major I&C customer base.

 

That said, Nomura prefers MGL for its superior volume outlook, low regulatory risk from EV policies, and attractive valuation. GGL is rated ‘Reduce’ due to demand headwinds in the I&C segment and a challenging competitive landscape, though GST inclusion remains a key upside risk.