Why Axis Securities see 20% upside in Mahanagar Gas? Details here

Axis Securities has initiated ‘Buy’ on Mahanagar Gas as it believes the company can leverage its presence in one of the country’s most urbanised and high-income regions—Mumbai. The brokerage has given a target of ₹1,540, which translates to 19.5 per cent upside from Thursday’s close at ₹1,287.85 per share. 

 

At 11:18 AM, Mahanagar Gas’ share price was trading 1.23 per cent lower at ₹1,272 per share. In comparison, BSE Sensex was down 0.23 per cent at 80,535.82. 

 

In a year, Mahanagar Gas shares have lost 30 per cent as compared to the Sensex’s decline of 2 per cent.

 

Here’s are key reasons why Axis Securities is bullish on Mahanagar Gas:

Mahanagar Gas’ expansion to boost volume growth

The company is accelerating its expansion to drive volume growth, which lagged the broader City Gas Distribution (CGD) sector in FY19-24 due to lower past capital expenditure, according to brokerage.The company has increased capex from ₹300-400 crore annually to ₹1,000 crore in FY25, with plans for ₹1,100-1,300 crore in the next two years.

 

The acquisition of Unison Enviro Pvt Ltd (UEPL) in February 2024 added new geographical areas (Ratnagiri, Latur-Osmanabad, and Chitradurga-Davangere districts) with significant untapped potential, particularly in the commercial and industrial segments. This increased investment in infrastructure and marketing initiatives is expected to boost future volume growth. 

Volume growth to support earnings

Axis Securities forecast Earnings before interest, tax, depreciation and amortisation/ profit after tax (EBITDA/PAT) compound annual growth rates (CAGRs) of 9.5 per cent/8 per cent for FY25–28E, driven by a 9.4 per cent volume CAGR from network expansion in GA-3 (Raigad) and UEPL (50 per cent/40 per cent year-on-year (Y-o-Y) in FY25). Regulatory measures to improve Mumbai Metropolitan Region (MMR) air quality could provide additional upside, according to analysts. Ebitda margins are expected to stay around ₹9–10 per standard cubic meter, supported by lower gas costs and rising Henry-Hub-linked supply from parent GAIL.

Policy support and a large CGD growth runway

The city gas distribution (CGD) company is poised to benefit from priority access to low-cost domestic gas under the Administered Pricing Mechanism (APM), and regulatory pushes to improve metro air quality are expected to encourage industry and transport to adopt cleaner fuel. Natural gas currently makes up 7 per cent of India’s primary energy mix, with a government target of 15 per cent by 2030 — a shift that relies heavily on CGD expansion. 

 

India’s CGD market is projected to nearly double from $11.33 billion in 2025 to $20.93 billion by 2030. As of Mar’25, there were 1.5 crore domestic piped gas connections and around 8,000 CNG stations. By 2032, CGD companies aim to scale up the network to 12.6 Cr residential consumers, significantly expand commercial and small industrial coverage, and increase the number of CNG stations to 18,300 nationwide.