Mahanagar Gas Ltd. (MAHGL) delivered a first quarter that comfortably outran expectations on profitability, even as reported earnings fell versus the year-ago period. Motilal Oswal Financial Services has reiterated its Buy rating on the city gas distributor with an unchanged target price of Rs 1,560, implying roughly 39% upside from the current market price of Rs 1,121. The standout figure: EBITDA per standard cubic metre of gas sold came in at Rs 7.9, a 43% beat over the brokerage's own estimate, even as total volumes tracked in line with forecasts at 4.8 million metric standard cubic metres per day (mmscmd), up 7% year-on-year.

The Headline Beat: Margins Outrun Volumes

On a sequential basis, EBITDA per scm rose Rs 1.7 as realizations climbed Rs 5.9 quarter-on-quarter and operating expenses eased by Rs 0.5 — even as gas procurement costs rose Rs 4.7 over the same period. The net effect: reported EBITDA of roughly Rs 343 crore, down 32% year-on-year but 42% ahead of the brokerage's estimate, while profit after tax of approximately Rs 194 crore came in 62% above forecast despite falling 39% versus the year-ago quarter.

What Motilal Oswal Liked — And What It's Watching

Operational Scorecard: 1QFY27

Gas Sourcing: A Mixed Bag Behind The Margin Story

MAHGL's cost structure remains a patchwork of sourcing arrangements. As of March 2026, administered price mechanism (APM) gas accounted for 30% of supply, pooled and NWG gas another 22% (priced at $12.5-13/mmbtu, though this pooled arrangement was discontinued from July 4, 2026), high-pressure/high-temperature gas 15%, and Henry Hub-linked gas 21%. Notably, the company's full contracted allocation of 1.5 mmscmd of Henry Hub-linked gas remains unavailable due to a force majeure event, with only 1.0 mmscmd currently flowing through the books — a gap that, if resolved, could meaningfully lower gas sourcing costs going forward. The residual balance is sourced through Brent-linked contracts, IGX and spot purchases, with spot prices spiking as high as $20/mmbtu during the quarter.

Capital Allocation And Strategic Investments

MAHGL deployed Rs 4.9 crore in strategic investments during the quarter, including Rs 1 crore into 3EV Industries via optionally convertible debentures, and Rs 3.9 crore to acquire a 26% equity stake in FPEL Reliant Energy Pvt. Ltd. as a captive power user. Separately, quarterly capital expenditure came in at Rs 350 crore, driven largely by the pace of new domestic PNG connection additions, as the company works toward its full-year FY27 capex guidance of Rs 1,500-1,800 crore.

Valuation And Outlook: Volume CAGR Of 9% Through FY28

Motilal Oswal models a 9% volume CAGR for MAHGL over FY26-28, underpinned by continued collaboration with original equipment manufacturers and transporters to accelerate commercial CNG vehicle conversions, alongside guaranteed price discounts extended to new industrial and commercial PNG customers. The brokerage estimates EBITDA margins of Rs 8.3 and Rs 9.7 per scm for FY27 and FY28, respectively.

MAHGL currently trades at 8.9x FY28E standalone P/E. Motilal Oswal values the stock at 13x its December 2027 earnings estimate, arriving at the target price of Rs 1,560 per share.

Risks To Watch

The clearest overhang on the story is the health of the industrial and commercial PNG segment, which contracted 7% year-on-year this quarter. Since I&C-PNG pricing is benchmarked to alternate fuels such as bulk LPG, furnace oil and low-sulphur heavy stock, any sharp softening in those reference prices could compress the segment's realizations — and, by extension, MAHGL's blended margins — in the quarters ahead. Incremental debt to fund the stepped-up capex program is another factor investors will be tracking closely through FY27.