MGL, IGL shares trade at discount despite strong growth outlook. Is this a buying opportunity?

Stocks to buy: Shares of Mahanagar Gas (MGL) have jumped 7.45% to ₹1,380 over the last six months, while Indraprastha Gas (IGL) has declined by 3% during the same period. However, both stocks have outperformed the benchmark Sensex by 14% and 6%, respectively.

This outperformance, analysts believe, could be attributed to the partial reversal of the earlier reduction in domestic gas allocation to the City Gas Distribution (CGD) sector.

Going forward, domestic brokerage HDFC Securities expects both companies to benefit from the replacement of expensive spot gas purchases with cheaper HPHT domestic gas, continued strong CNG vehicle registrations, and accelerated expansion of retail outlets and customer additions in the industrial segment.

Furthermore, the brokerage noted that competitive CNG prices compared to auto fuels should support robust volume growth for MGL and IGL at a CAGR of 12% and 9%, respectively, over FY24-27E.

Citing Vahan data, the brokerage highlighted a 24% YoY growth in new CNG vehicle registrations in MGL’s core geographic areas (GAs) for FY25 YTD, rising to 78,257 vehicles (April 2024–February 2025) from 63,122 vehicles (April 2023–February 2024).

After recording 44% YoY growth in January 2025, new CNG vehicle registrations for February 2025 stood at 6,227, reflecting a 0.4% YoY increase. The brokerage believes that CNG’s competitiveness against auto fuels in Mumbai, along with an expanding network of retail outlets, will continue to drive vehicle conversions to CNG.

"For IGL, new CNG vehicle registrations in its core GAs for FY25 YTD (April 2024–February 2025) grew 12% YoY to 131,292 vehicles, up from 117,325 vehicles during the same period last year. In February 2025, 14,453 new CNG vehicles were registered, marking a 37% YoY increase," said the brokerage.

Both stocks below historical averages despite the growth outlook

At the current price, MGL and IGL are trading at 10.7x and 14.9x March-26E EPS, respectively, representing a 16% and 23% discount to their five-year averages, despite a strong volume growth outlook in the medium term.

The brokerage estimates that, at current prices, MGL factors in an EBITDA margin of only ₹7.1/scm, compared to ₹8.6/scm reported in Q3FY25, while IGL factors in an EBITDA margin of ₹3.2/scm, versus ₹4.3/scm in Q3FY25.

As a result, the brokerage has maintained its 'buy' rating on both stocks, with a target price of ₹2,000 per share for MGL, indicating an upside of 56%. For IGL, it expects the stock to rise 40% from current levels to reach ₹258 per share.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.