Mahanagar Gas IPO -Should You Subscibe?
After the recent blockbuster IPOs of Ujjivan, Equitas & Thyrocare; there is another IPO from Mahanagar Gas Ltd (MGL). Each day, you may be savoring the scrumptious meals cooked at home, blissfully oblivious that a drab sounding company, ‘Mahanagar Gas’, plays a role in your culinary delights, provided you are a resident of Mumbai or its adjoining areas.
MGL is one of the largest City Gas Distribution (CGD) companies in India – It is the sole authorized distributor of Compressed Natural Gas (CNG) used in motor vehicles & Piped Natural Gas (PNG) for domestic household, industrial & commercial use in Mumbai, its adjoining areas & Raigad district in Maharashtra.
We recommend to subscribe to this IPO for the below reasons:
Investment Arguments
- Scope for Long Term Growth:
Compressed Natural Gas (CNG) & Piped Natural Gas (PNG) distributed by MGL are poised for long term growth – CNG will witness growth as it’s an economical and environmentally cleaner source of fuel for vehicles vs. petrol, diesel, etc; while PNG’s growth will be driven by increasing penetration in households & commencement of gas supply to Raigad district.
- Assured Supply of Domestic Natural Gas:
Due to City Gas Distribution (CGD) being classified as priority sector by Govt., MGL is assured of access to relatively cheaper domestic natural gas (raw material).
- Monopoly in Distribution: A Potent Competitive Advantage –
MGL has exclusive authorization to lay, build, expand and operate the CGD network in Mumbai till 2020, Adjoining areas until 2030 &Raigad district until 2040. As per regulations, this exclusivity can be extended in blocks of 10 years.
GreenEdge Wealth Services’ View
At the higher price band of Rs. 421, the company is valued at 12.3x FY16 earnings, which is at a discount to its closest peer Indraprasth Gas Limtied. Considering the company’s growth prospects, attractive valuations, presence of entry barriers like infrastructure exclusivity, requirement of large capex for establishing distribution network & multitude regulatory approvals, we recommend to subscribe to the issue.
Issue Details
| Issue Open Date | 21st June, 2016, Tuesday |
| Issue Close Date | 23rd June, 2016, Thursday |
| Issue Price (Rs.) | 380 to 421 |
| Market Lot | 35 |
| Minimum Application Size for Retail (Rs.) | 14,735/- |