Shares of Mahanagar Gas Ltd (MGL) experienced significant pressure in Monday's trading session following the release of its fourth-quarter (Q4 FY26) results. The company's performance fell short of Street expectations, primarily due to escalating gas costs and ongoing supply disruptions. The stock was last observed trading 5.01 percent lower at Rs 1,113.20.
Nuvama Institutional Equities, a prominent domestic brokerage, reiterated its 'Reduce' rating on the city gas distributor. The firm highlighted concerns over near-term margin pressure and broader sector valuation issues, attributing them to policy uncertainty.
Q4 Performance Misses Estimates
Nuvama's analysis revealed that MGL's Q4 FY26 EBITDA missed the consensus estimate by 8 percent. This shortfall was largely driven by a 9 percent spike in gas costs, exacerbated by a weak Indian Rupee and disruptions in LNG supply. Consequently, the company's EBITDA per standard cubic meter (scm) plummeted by 38 percent year-over-year.
Despite these challenges, MGL reported a 6 percent year-on-year expansion in volumes, with Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) segments growing by 7 percent and 4 percent, respectively. However, Profit After Tax (PAT) also missed consensus by 21 percent, primarily due to a 31 percent decline in other income.
Outlook: Geopolitical Tensions & Rupee Weakness Weigh on Margins
According to Nuvama, rising input costs, directly linked to geopolitical tensions in West Asia and the depreciating rupee, are expected to continue impacting MGL's margins in the near term. The brokerage specifically pointed to shipping restrictions in the Strait of Hormuz, which are causing major LNG supply disruptions. Additionally, the recent sharp depreciation of the Indian Rupee has increased the cost of input gas, which is 100 percent dollar-denominated.
MGL management expressed optimism, targeting a 10 percent volume growth in FY27, supported by government policies. However, Nuvama remains cautious regarding the company's ability to maintain EBITDA/scm above Rs 8, especially given the Q4 EBITDA/scm of Rs 6.2 and the anticipated spillover impact of the conflict into Q1 FY27. Domestic gas prices have already surged by approximately two-thirds in April-May 2026 from March levels, affecting Non-Weighted Gas (NWG) prices, which constitute about 10 percent of MGL's sourcing mix.
"Retain 'Reduce' due to near-term margin pressure and sector multiples de-rating due to ad-hoc government policies causing uncertainty (similar to OMCs, which trade at a considerable discount)," Nuvama stated, noting that MGL trades at 9x/7x FY27E/28E EV/EBITDA.
This article is for informational purposes only and does not constitute investment advice. Readers should consult with a qualified financial advisor before making any investment decisions.