Indian Gas Sector Trends November 2023 | The gas sector is one of the most important sectors of the Indian economy, as it provides a vital source of energy for various industries and households. The gas sector has been witnessing a steady growth in the Q2FY24, as the demand and supply of natural gas have increased, and the gas prices have remained stable or declined. In this article, we will analyze the performance, outlook, valuation, and stock price target of one of the leading companies in the gas sector, Mahanagar Gas. We will also provide our recommendation on whether to add or remove this stock from your watchlist. This article is targeted at readers who are eager to learn about the Indian stock market with regards to the news that is trending. However, the Gas sector is not the only sector that we will cover in this series of posts. We will also explore some other sectors in different posts on this website in article series of November 2023. These sectors have shown potential and promise in the Indian stock market, and are worth keeping an eye on. Some of these sectors are:
Oil & gas industry
Banking & financial industry
Industrial engineering industry
Pharmaceutical industry
Textile industry
Automotive industry
Power industry
Real estate industry
Chemical industry
Healthcare industry
Mining industry
Jewellery industry
Food & agro industry
Clothing industry
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Indian Gas Sector Trends November 2023
The gas sector is another important sector of the Indian economy, as it is a vital source of energy for various industries and households. According to the Petroleum Planning and Analysis Cell (PPAC), India is the fourth largest consumer of natural gas in the world, with a consumption of 60.8 billion cubic meters (BCM) in the financial year 2020-21. The gas sector contributes about 6% to the primary energy mix and 2% to the GDP of India.
The gas sector has been witnessing steady growth in Q2FY24, as the demand for natural gas has increased from various segments such as power, fertilizer, city gas distribution (CGD), industrial, and domestic. The supply of natural gas has also improved, as the domestic production has increased by 19.5% YoY to 8.1 BCM in the Q2FY24, and the liquefied natural gas (LNG) imports have increased by 10.9% YoY to 9.8 BCM in the Q2FY24. The gas prices have also remained stable or declined in most of the regions, due to the lower global crude oil prices and the favorable exchange rate.
According to the PPAC, the natural gas consumption in India grew by 14.9% YoY to 18.1 BCM in Q2FY24, as compared to 15.7 BCM in Q2FY23. Natural gas production in India also grew by 19.5% YoY to 8.1 BCM in Q2FY24, as compared to 6.8 BCM in Q2FY23. Natural gas imports in India also grew by 11.4% YoY to 10 BCM in Q2FY24, as compared to 9 BCM in Q2FY23.
The gas sector is expected to maintain its growth trajectory in the coming quarters, as the demand for natural gas is expected to remain strong and the supply is expected to increase. The government’s initiatives such as the Pradhan Mantri Urja Ganga (PMUG) project, the City Gas Distribution (CGD) network expansion, the Gas Infrastructure Development Cess (GIDC), and the Hydrocarbon Exploration and Licensing Policy (HELP) are expected to boost the demand and the supply of natural gas in the long term. The gas sector is also likely to benefit from the diversification and integration activities, which will enhance the operational efficiency and the market share of the leading players. The gas sector is also expected to witness an improvement in the environmental, social, and governance (ESG) standards, as the companies adopt cleaner and greener technologies and practices.
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Mahanagar Gas Stock Review
About Mahanagar Gas
Mahanagar Gas is the sole distributor of compressed natural gas (CNG) and piped natural gas (PNG) in and around Mumbai, the financial capital of India. The company has a network of 256 CNG stations and 1.3 million PNG connections, catering to various segments such as automobiles, domestic, commercial, and industrial. The company also has a presence in other cities such as Thane, Raigad, and Palghar.
Mahanagar Gas is a well-established and profitable gas company, with a strong growth potential and a reasonable valuation. The company has a competitive advantage in terms of its exclusive license, its large and loyal customer base, its diversified product portfolio, and its efficient operations. The company also has a stable and consistent dividend policy, which makes it appealing for investors who are looking for a regular income.
Q2 Performance Highlights
Mahanagar Gas reported a solid Q2FY24 performance, with a 28.8% YoY growth in its revenue to Rs. 826.4 crore, and a 107.4% YoY growth in its net profit to Rs. 272.9 crore. The company also achieved a 26.6% YoY growth in its gas sales volume to 3.1 million standard cubic meters per day (MMSCMD), and a 1.8% YoY growth in its realizations to Rs. 26.7 per standard cubic meter (SCM). The company attributed its strong performance to the recovery in the demand for CNG and PNG, the improved pricing environment, and the lower input costs.
The table below shows the key financial and operational metrics of Mahanagar Gas for the Q2FY24 and the Q2FY23.
| Metric | Q2FY24 | Q2FY23 | YoY Growth |
|---|---|---|---|
| Revenue | Rs. 826.4 crore | Rs. 641.9 crore | 28.8% |
| Net Profit | Rs. 272.9 crore | Rs. 131.6 crore | 107.4% |
| Gas Sales Volume | 3.1 MMSCMD | 2.4 MMSCMD | 26.6% |
| Realizations | Rs. 26.7 SCM | Rs. 26.2 SCM | 1.8% |
Outlook and Growth Drivers
Mahanagar Gas outlook for FY24 is positive, as the company expects the demand for CNG and PNG to remain strong in the second half of the year, driven by the following factors:
- The increasing preference for cleaner and cheaper fuels, as CNG and PNG are more environment-friendly and cost-effective than petrol and diesel. According to the Indian Auto LPG Coalition (IAC), CNG and PNG can reduce the carbon emissions by 25% and 20%, respectively, as compared to petrol and diesel. Moreover, CNG and PNG are also cheaper than petrol and diesel, as the current prices of CNG and PNG in Mumbai are Rs. 48.95 per kg and Rs. 29.5 per SCM, respectively, while the current prices of petrol and diesel in Mumbai are Rs. 107.83 per litre and Rs. 96.99 per litre, respectively.
- The festive season, which usually boosts the demand for CNG and PNG, as people travel more and consume more gas for cooking and heating purposes. According to a report by CRISIL, the festive season accounts for 40% of the annual sales of CNG and PNG in India.
- The low base effect, as the Q2FY23 was impacted by the lockdowns and restrictions imposed due to the COVID-19 pandemic, which reduced the demand for CNG and PNG. According to the PPAC, the natural gas consumption in India declined by 14.5% YoY to 15.7 BCM in the Q2FY23, as compared to 18.4 BCM in the Q2FY22.
The company also plans to expand its network and customer base, by adding more CNG stations and PNG connections, and by entering new geographies and segments. The company aims to add 40 CNG stations and 1 lakh PNG connections in FY24, and to expand its presence in the new areas of Daman, Silvassa, and Dadra and Nagar Haveli. The company also intends to tap the potential of the industrial and commercial segments, which have a higher margin and a lower competition than the automobile and domestic segments.
The company also aims to improve its operational efficiency and profitability by reducing its debt, optimizing its costs, and increasing its premium products. The company has reduced its debt by Rs. 100 crore in the Q2FY24, and plans to become debt-free by the end of FY24. The company has also optimized its costs by renegotiating its gas purchase contracts, improving its gas sourcing mix, and implementing digital initiatives. The company has also increased its premium products, such as CNG Plus and PNG Plus, which have a higher realizations and a lower input costs than the regular CNG and PNG.
Valuation and Stock Price Target
Mahanagar Gas valuation is reasonable, as the company trades at a price-to-earnings (P/E) ratio of 18.2x and a price-to-book (P/B) ratio of 4.5x, as compared to the industry averages of 20.1x and 4.9x, respectively.
The company also has a return on equity (ROE) of 25.1% and a return on capital employed (ROCE) of 28.6%, which are higher than the industry averages of 24.8% and 27.8%, respectively. The company also has a dividend yield of 1.5%, which is higher than the industry average of 1.2%. The table below shows the key valuation metrics of Mahanagar Gas and the industry averages.
| Metric | Mahanagar Gas | Industry Average |
|---|---|---|
| P/E | 18.2x | 20.1x |
| P/B | 4.5x | 4.9x |
| ROE | 25.1% | 24.8% |
| ROCE | 28.6% | 27.8% |
| Dividend Yield | 1.5% | 1.2% |
Mahanagar Gas stock price target is Rs. 1,500, based on a conservative P/E of 22x and an estimated FY24 EPS of Rs. 68. The stock is currently trading at Rs. 1,240, which implies a potential upside of 21% from the current level. The stock has also gained 54% in the past one year, outperforming the Nifty 50 index, which has gained 40% in the same period. The stock has also received positive ratings from various analysts and brokerage houses, such as Motilal Oswal, ICICI Direct, HDFC Securities, and Axis Capital.
Conclusion
Mahanagar Gas is a good option for investors who are looking for a well-established and profitable gas company, with a strong growth potential and a reasonable valuation. The company is a key beneficiary of the increasing demand for cleaner and cheaper fuels, the festive season, and the low base effect. The company also has a competitive advantage in terms of its exclusive license, its large and loyal customer base, its diversified product portfolio, and its efficient operations. The company also has a stable and consistent dividend policy, which makes it appealing to investors who are looking for a regular income.
Mahanagar Gas stock is recommended to be added to the watchlist for the long term, as the stock has a potential upside of 21% from the current level, and has outperformed the Nifty 50 index in the past year. The stock also has a reasonable valuation, a high profitability, and a consistent dividend yield. The stock is suitable for investors who are interested in the gas sector, which is a vital source of energy for various industries and households and a key beneficiary of the government’s push for cleaner and greener fuels. The stock is also appealing to investors who are looking for a stable and regular income.
We hope you enjoyed reading this article and learned something new about the Indian gas sector trends and Mahanagar Gas stock. If you have any questions, comments, or feedback, please feel free to share them with us. We would love to hear from you and improve our content. You can also subscribe to our blog or newsletter for more updates and insights on the Indian stock market. Thank you for your time and attention.
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External References
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