Gas distribution stocks are drawing attention on September 17 as global brokerage UBS highlights the favorable outlook for these companies. UBS notes that while the immediate fundamentals are strong, inorganic growth opportunities are also promising. The firm expects that expanding infrastructure and entering new markets will boost volumes for companies in this sector.

 

UBS has upgraded Indraprastha Gas (IGL) to ‘buy’ from a previous ‘sell’ rating, with the target price increased to Rs 700 from Rs 300. This new target suggests a potential upside of 32% from the stock’s previous close. Previously, UBS had a bearish outlook on the city gas distribution (CGD) leader due to slowing volume growth and concerns about potential electrification risks.

Currently, IGL shares are trading over 4% higher at Rs 551.9 each on the BSE, reaching a day’s high of Rs 559.65, which is close to its 52-week peak achieved on September 2.

However, UBS has not yet factored in possible mergers and acquisitions (M&A) opportunities in its analysis.

 

UBS anticipates that Indraprastha Gas (IGL) will see improved volume growth, projecting a rise from approximately 4% year-over-year in FY24 to an 8.2% compound annual growth rate (CAGR) from FY24 to FY27. For Mumbai-based Mahanagar Gas, UBS has maintained its positive outlook, expecting strong volume growth to continue. Consequently, the brokerage has increased the target price for Mahanagar Gas to Rs 2,400 from the previous Rs 1,600, indicating a potential upside of 32% from the latest closing price.