Geojit has upgraded Mahanagar Gas Limited (MGL) to a BUY rating and assigned a revised 12-month target price of Rs. 1,352, implying an upside potential of approximately 24% from the current market price of Rs. 1,094. The brokerage believes that while the company faced margin pressure in FY26 due to LNG supply disruptions and elevated gas procurement costs, its long-term growth trajectory remains intact. Robust infrastructure expansion, steady customer additions, regulatory reforms that simplify network deployment, and management's focus on calibrated pricing actions are expected to support earnings recovery over the coming years.

Geojit Turns Positive on Mahanagar Gas Despite Near-Term Earnings Pressure

Geojit's latest assessment reflects renewed optimism toward Mahanagar Gas Limited after a challenging year marked by supply-side disruptions.

The city gas distribution company, which supplies natural gas to households, commercial establishments, and industrial customers, delivered resilient volume growth despite a difficult operating environment. While profitability suffered because of elevated gas sourcing costs, the company successfully protected its core customer base and continued to expand its distribution infrastructure.

The brokerage now values the stock at 14 times its rolled-forward FY28 estimated earnings, leading to a revised target price of Rs. 1,352 and a BUY recommendation.

Revenue Growth Demonstrates Business Resilience

MGL's top-line performance remained healthy despite disruptions in LNG supplies linked to geopolitical tensions in West Asia.

During Q4FY26, consolidated revenue increased 4.9% year-on-year to Rs. 2,259 crore. The growth was supported by higher gas sales volumes and selective pricing actions implemented by management.

The company recorded total gas sales volume of 4.672 million metric standard cubic meters per day (mmscmd), representing a 6.2% increase compared with the corresponding quarter last year.

Volume growth was broad-based across key segments:

The industrial and commercial segment continued to grow despite partial supply curtailments resulting from LNG shortages.

Margin Compression Weighs on Profitability

The most significant challenge during the quarter came from elevated gas procurement costs and disruption-related margin pressure.

EBITDA declined sharply by 34.2% year-on-year to Rs. 260 crore. Consequently, EBITDA margin contracted by 690 basis points to 11.5%.

The decline reflects increased dependence on higher-cost gas sourcing and the impact of supply disruptions on operational efficiency.

Profit after tax also witnessed substantial pressure, falling 46.3% year-on-year to Rs. 130 crore.

Key quarterly financial metrics were as follows:

Despite these pressures, management remains focused on protecting profitability through calibrated pricing measures and operational efficiencies.

Infrastructure Expansion Continues at an Aggressive Pace

The company's long-term growth story remains anchored in network expansion and customer acquisition.

During Q4FY26, MGL strengthened its distribution footprint significantly by:

• Laying 138 kilometers of pipeline infrastructure.
• Commissioning 28 new CNG stations.
• Adding 334 industrial and commercial connections.
• Registering 34,854 new CNG vehicles.

Management highlighted that regulatory reforms have accelerated project approvals, reduced road restoration costs, and simplified network deployment procedures.

These structural improvements are expected to support higher volume growth and customer additions over the coming years.

Management Guides for Strong Volume Growth Ahead

The outlook for FY27 remains encouraging despite ongoing industry-wide challenges.

Management expects double-digit volume growth, supported by:

• Faster infrastructure deployment.
• Improved regulatory environment.
• Continued expansion of domestic PNG customers.
• Growing CNG adoption.

The company has guided for capital expenditure of approximately Rs. 1,200 crore during FY27, subject to labor and material availability.

Additionally, management expects domestic PNG volume growth to exceed 10%, significantly above historical averages, driven by the addition of approximately 400,000–500,000 new customers.

To offset higher sourcing costs, MGL implemented a Re. 1 per kg increase in CNG prices effective April 22, 2026, while leaving room for further pricing actions if required.

Financial Outlook Signals Recovery by FY28

Although FY27 may remain a transitional year, Geojit expects earnings recovery to emerge during FY28.

Projected financial performance is as follows:

The projected rebound in FY28 is expected to be driven by improved margins, increasing customer penetration, and continued network expansion.

Investment View and Key Levels

MGL remains one of India's strongest city gas distribution franchises with a debt-free balance sheet and robust infrastructure-led growth opportunities.

While short-term profitability remains under pressure from gas sourcing costs and supply disruptions, the company has demonstrated resilience through volume growth and strategic expansion initiatives.

Geojit Recommendation: BUY

Current Market Price: Rs. 1,094

Target Price: Rs. 1,352

Potential Upside: 24%

Investment Horizon: 12 Months

The brokerage believes that regulatory tailwinds, rising CNG adoption, accelerated customer additions, and proactive pricing actions position Mahanagar Gas for a meaningful earnings recovery, making current valuations attractive for long-term investors.

Disclaimer: Investors should conduct their own due diligence and assess risk tolerance before making any investment decisions. Stock market investments are subject to market risks, and future performance may differ from projections.