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MGL has a monopoly position in Greater Mumbai (GA1) and the surrounding expansion areas (GA2) and it has diversified its customer profile. MGL could continue to enjoy a dominant market share because of its first-mover advantage, as is evident from its established infrastructure network. Additionally, there are significant entry barriers for third-party marketers. These are arising mainly from concerns regarding availability of gas at competitive prices. MGL is in a sweet spot given the existing large customer area and the new area (Raigarh district), modest penetration in the existing areas, favourable feedstock allocation and gas pricing, strong financial profile, strong robust free cash flows and strong robust return ratios. Markets could gradually correct the under-valuation that it is giving to MGL currently.
We feel investors could buy the stock at the CMP, and add on dips to the Rs. 872-876 band (14.75x FY20E EPS) for sequential targets of Rs 1,097 (18.5x FY20E EPS) and Rs 1,188 (20.0x FY20E EPS). At the CMP of Rs 973, the stock trades at 16.4x FY20E EPS.