Mahanagar Gas (MGL) is one of the largest City Gas Distributor (CGD) Company in India. It provides Natural gas in Mumbai. MGL is coming up with an Initial Public Offering (IPO) of 24.69 million shares through 100% book building process. The IPO will open for subscription on Tuesday, June 21, 2016 and will close on Thursday, June 23, 2016. The price band for the issue has been fixed at Rs 380 to Rs 421.
Brokerage firms ICICI Securities, Angel Broking, Reliance Securities and Way2Wealth Brokers have recommended 'Subscribe' to IPO of Mahanagar Gas.
Commenting on the investment rationale, ICICI Securities, said, ''MGL presents an opportunity to have an exposure to the robust business model and growing CGD space. We believe the company's strong CGD network offers good demand potential due to lower CNG, residential PNG penetration and increased usage of gas for industrial volumes. The strong financial position provides MGL with financial flexibility to expand its network in its existing markets and enter new markets. The proposed issue price band of Rs 380-421 implies a P/E of 11-12.2x (12.1-13.5x on a diluted basis) on FY16 earnings, which is at a discount to its benchmark peers. We recommend that investors 'SUBSCRIBE' to the IPO.''
Meanwhile, Angel Broking, said, ''On considering almost similar growth potential as that of the industry peer Indraprastha Gas (IGL), 22%+ RoE levels as reported in the last 6 years, debt free status, yearly cash flow generating potential of Rs 2 billion+, strong dividend payout ratio (Management has guided for 35% dividend payout; translates to ~4% dividend yield), the issue at 12.9x PE FY2016 (vs peers trading at over 18.0x) is attractively priced. We recommend 'SUBSCRIBE' to Mahanagar Gas IPO.''
Reliance Securities said, ''MGL's sales volume and revenue grew at the CAGR of 5.7% & 12.3%, respectively over FY12-FY16. At upper price band, MGL will trade at 12.6x FY16 earnings, while its peer Indraprastha Gas currently trades at 18x FY16 standalone earnings. However, we believe that the valuation gap will shrink, going forward given growth prospects of MGL. Considering MGL’s vast network, potential growth opportunities in newer areas, robust natural gas consumption outlook suggesting steady growth, strong management background, high entry barriers and attractive issue price (upper price band) vis-à-vis peers, we recommend 'SUBSCRIBE' to the issue.''
Way2Wealth Brokers said, ''At upper band of Issue price of Rs 421, MGL stock is likely to trade at FY16 PE multiple of 13.5x. Going forward MGL is likely to witness growth on account of a) anticipated growth in the number of CNG operated vehicles (cost effectiveness of CNG) b) growth in the number of households in areas of operation and (iii) commencement of gas supply to Raigad district consumers. MGL's stock is offered at reasonable valuations given its secular growth potential, debt free-cash generating-high ROE business model. We recommend 'SUBSCRIBE' with a long term view.''
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