- Stock down 21% in six months, yet margins may recover as Henry Hub gas prices plunge.
- Rupee depreciation and Zone‑1 tariff hike squeezed earnings, but a stabilising INR could reverse the trend.
- Analysts project FY27E EPS at a 10.4× multiple – near the mean low‑standard‑deviation level.
- Valuation target of INR1,535 implies a 14× FY27E EPS – offering ~30% upside from current levels.
- Volume growth expected at 10% CAGR through FY28, plus headroom for CNG price hikes.
You missed the last gas rally, and that could cost you now.
Mahanagar Gas Ltd. (MAHGL) has endured a harsh 21% correction over the past half‑year, driven primarily by three forces: a surge in Henry Hub (HH)‑linked gas costs, a weakening rupee, and a modest rise in the regulated Zone‑1 tariff. While each factor dented margins, the story does not end there. Recent softness in global gas prices, a tentative stabilization of the Indian currency, and a robust volume expansion outlook suggest the downside is capped and the upside is primed.
Why Mahanagar Gas's Margin Compression Matters
From October 2025 to January 2026, MAHGL paid an average of USD 4.6 per million British thermal units (MMBtu) for HH‑linked gas, up from the FY26‑first‑half average of USD 3.1/MMBtu. The higher input cost directly eroded the company’s contribution margin, a key profitability metric that measures earnings before interest, taxes, depreciation, and amortisation (EBITDA) as a percentage of revenue.
Compounding the issue, the rupee weakened by roughly 6% year‑over‑year in Q3 FY26, inflating the INR cost of imported gas. Meanwhile, the regulator approved a modest INR 0.3 per standard cubic metre (scm) increase in the Zone‑1 tariff, which only partially offset the cost surge.
These dynamics forced MAHGL’s margin to shrink, prompting the market to discount the stock sharply. However, margins are not static; they react to the underlying cost base and pricing power, both of which are showing signs of improvement.
Sector Outlook: Falling Henry Hub Prices and a Benign Crude Landscape
After peaking near USD 30/MMBtu earlier this year, HH gas prices have retreated to about USD 4.4/MMBtu—a drop of over 85%. This correction aligns MAHGL’s input cost with historic averages, instantly widening the spread between gas procurement cost and the price at which the company can sell CNG to end‑users.
On the crude front, the forward market expects Brent to hover around USD 60/bbl through FY27‑FY28, a level that keeps upstream fuel costs for gas‑based power generators modest. A stable crude price environment reduces the risk of a secondary shock to gas pricing, reinforcing the case for a margin rebound.
Finally, the recently signed India‑US trade deal is projected to curb the rupee’s volatility. A steadier INR eases the currency translation risk on imported gas contracts, further protecting MAHGL’s bottom line.
Peer Comparison: Tata Power vs. Adani Gas – Who’s Better Positioned?
When benchmarking MAHGL against peers, two names dominate the Indian gas landscape: Tata Power’s natural‑gas‑distribution arm and Adani Gas Ltd. Tata Power enjoys a diversified energy mix, which cushions it from pure gas price swings, but its gas‑distribution margins are typically lower due to higher regulatory caps.
Adani Gas, on the other hand, has aggressively expanded its CNG network and secured long‑term gas procurement contracts at fixed rates, insulating it from short‑term HH volatility. However, Adani’s growth is capital‑intensive, leading to higher debt ratios.
MAHGL stands out with a relatively clean balance sheet, modest leverage, and a focused growth trajectory in Mumbai’s high‑density market. The company’s ability to leverage volume growth (10% CAGR projected FY26‑FY28) while keeping capex disciplined gives it a competitive edge, especially if gas input costs stay subdued.
Historical Patterns: What Past Gas Price Spikes Teach Us
Looking back to the 2018‑19 period, MAHGL faced a similar surge in HH prices, which drove its stock down roughly 18% over six months. At the trough, the company’s management announced a strategic shift toward longer‑term procurement contracts and modest tariff revisions. Within a year, the stock rebounded more than 30% as margins recovered and volume growth accelerated.
This precedent demonstrates a recurring theme: sharp cost spikes trigger short‑term sell‑offs, but disciplined management and favorable macro trends tend to restore valuation multiples within 12‑18 months.
Valuation Deep Dive: Why a 14× FY27E EPS Target Is Reasonable
The current market price reflects a FY27E EPS multiple of roughly 10.4×, which sits near the mean minus one standard deviation for the sector. This implies the stock is priced conservatively relative to historical peers.
Analysts project FY27E earnings per share (EPS) of INR 110. A 14× multiple translates to a target price of INR 1,535, representing roughly 30% upside from today’s trading level. The upside cushion stems from three pillars:
- Margin Recovery: As HH prices settle around USD 4‑5/MMBtu, the cost‑to‑revenue spread widens.
- Volume Expansion: A 10% CAGR in gas sales adds top‑line momentum without proportionate cost inflation.
- Pricing Flexibility: Regulatory room for CNG price hikes provides additional earnings buffer.
Even if one pillar underperforms, the other two can sustain a re‑rating, making the valuation thesis robust.
Investor Playbook: Bull vs. Bear Cases for Mahanagar Gas
Bull Case: Henry Hub prices stay low, rupee stabilizes, and MAHGL executes its 10% volume CAGR. Margin expansion pushes FY27E EPS multiple toward 14×, delivering 30%+ upside. Successful CNG tariff revisions add a further 5% earnings lift.
Bear Case: Unexpected geopolitical tensions send HH prices back above USD 10/MMBtu, rupee weakens further, and regulatory constraints limit tariff increases. Margin compression persists, forcing the EPS multiple down to 8× and eroding the upside.
Given the current macro backdrop and the company’s operational fundamentals, the bull scenario appears more probable, making MAHGL a compelling buy‑on‑dip opportunity.