Summary : Motilal Oswal has given a Buy rating on a PSU gas distribution company, Mahanagar Gas Ltd, with a target price of ₹1,535. This indicates an upside potential of around 43% from current levels. The brokerage believes that easing gas costs, stable demand for CNG, and expansion of CNG stations could help the company improve margins and earnings over the next few years.
Motilal Oswal’s Top PSU Stock Recommendation With 43% Upside
Motilal Oswal Financial Services has turned positive on Mahanagar Gas Ltd, a public sector company engaged in city gas distribution. The brokerage has issued a Buy recommendation, citing improving cost conditions, steady demand growth, and attractive valuation.
At the current market price, Motilal Oswal’s target of ₹1,535 suggests an upside of nearly 43%, making the stock interesting for investors looking at PSU opportunities in the energy space.
Why Motilal Oswal Is Bullish on Mahanagar Gas
Over the past six months, Mahanagar Gas shares have corrected by around 21%. According to the brokerage, this fall was mainly due to higher global gas prices, a weaker rupee, and tariff-related pressure on margins.
However, Motilal Oswal believes the situation is now improving. International gas prices linked to the Henry Hub benchmark have cooled off after a temporary spike caused by harsh winter conditions in the US. Since a portion of Mahanagar Gas’s gas sourcing is linked to these prices, lower costs could support margin recovery going forward.
The brokerage also expects currency stability after recent trade developments, which may further reduce pressure on input costs.
Demand Outlook Remains Strong
Mahanagar Gas operates in Mumbai, where CNG continues to be significantly cheaper than petrol and diesel. This price advantage supports steady demand from vehicle owners, even if small price hikes are needed to protect margins.
Motilal Oswal noted that even in a scenario where the company receives no low-cost APM gas, only a limited increase in CNG prices would be required. Such an increase is unlikely to affect demand or new vehicle registrations.
Expansion Plans to Drive Growth
The company is aggressively expanding its CNG station network. It plans to add around 50 new standalone CNG stations in FY26 and aims to set up nearly 250 new stations by FY30.
This expansion, combined with rising CNG vehicle adoption, is expected to drive volume growth. The brokerage estimates volume growth of about 10% annually over the next few years.
Valuation Looks Comfortable
Mahanagar Gas is currently trading at around 10 times its expected earnings for FY27, which is lower than its historical average. The company has a strong balance sheet with minimal debt and healthy return ratios.
Motilal Oswal expects revenues and profits to grow steadily over the next two years, supported by higher volumes and improving margins.
Recent Financial Performance
In the latest reported quarter, the company recorded solid revenue growth compared to last year, although profits declined due to higher costs. Despite this short-term pressure, the company has delivered strong sales growth over the last three years, showing the strength of its underlying business.
Business Overview
Mahanagar Gas was incorporated in 1995 and is engaged in supplying compressed natural gas (CNG) and piped natural gas (PNG) in Mumbai and nearby regions. The company serves millions of households, vehicles, and industrial customers through an extensive pipeline and CNG station network.
Final View
Motilal Oswal believes Mahanagar Gas offers a good risk-reward opportunity at current levels. With easing gas prices, strong demand for CNG, expansion plans, and reasonable valuation, the brokerage expects the stock to deliver healthy returns over the medium term.
For investors looking for a PSU stock with stable business fundamentals and growth potential, Mahanagar Gas could be worth tracking closely.
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