Shares of Mahanagar Gas (MGL) touched a 52-week high of Rs 969.60 in Monday’s trade after natural gas distribution company Unison Enviro Private Limited (UEPL) announced its acquisition of city gas distribution company. 531 crores of Rs.
“Mahanagar Gas Limited (MGL or the Company) has entered into a Share Purchase Agreement (SPA) with Unison Enviro Private Limited (UEPL) and UEPL’s existing shareholders (an investment fund managed by Ashoka Buildcon Ltd. and Morgan Stanley India Infrastructure). Acquisition of 100 percent stake in UEPL,” MGL said in a stock exchange filing.
This acquisition will allow MGL to expand into new geographical areas in Maharashtra including Ratnagiri, Latur and Osmanabad and new areas in Karnataka such as Chitradurga and Davanagere, thereby providing new opportunities for long-term growth of the natural gas distribution company. It will also help expand MGL’s future business development activities in terms of expanding its network and customer base, the company said in a statement.
With this acquisition, MGL has made its first inorganic foray, Citi noted. The deal isn’t cheap, but is strategically positive and could improve the natural gas distribution company’s growth prospects, he added.
Additionally, UEPL is a subsidiary of Ashoka Buildcon and has received approval from the Petroleum and Natural Gas Regulatory Board to develop gas distribution business in Ratnagiri, Latur, Osmanabad and Chitradurga and Davanagere. The division is engaged in the supply of natural gas to the domestic, commercial, industrial and transport sectors.
Reacting to news of the acquisition, shares of the highway developer rose 2.9 percent to trade at Rs 78.29 on the BSE.
What should investors do now?
CITI maintains a ‘buy’ stance on Mahanagar Gas with a target of Rs 1,030 per share. Gas distribution company Ashoka Buildcon is making its first inorganic foray by acquiring 100 per cent stake in city-owned gas unit Unison Enviro.
The deal — MGL’s first acquisition — isn’t cheap, but is strategically positive and could improve the natural gas distribution company’s growth outlook, brokerage and research firm Citi said in a note to clients.
Citi is positive on the deal, despite a 6.4 times forward valuation. The acquired city gas distributor is still in its early growth stages, but the acquisition could be a good use of cash by improving MGL’s growth outlook, Citi said.
MGL’s strong presence in Maharashtra could give it geographic synergies and change the perception of the company’s lack of growth aggression, he said.
MGL supplies natural gas through Compressed Natural Gas (CNG) to vehicles and Piped Natural Gas (PNG) to residential, commercial and industrial customers in Mumbai, Navi Mumbai, Thane including adjoining areas and Raigad district.
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