Shares of Mahanagar Gas (MGL) declined 7 per cent to hit a 52-week high of Rs 969.60 in Monday’s intra-day trade after the natural gas distribution company announced acquisition of city gas distribution company Unison Enviro Pvt Ltd (UEPL). announced. 531 crores
Mahanagar Gas Limited (MGL or the Company) has signed a Share Purchase Agreement (SPA) with Unison Enviro Private Limited (UEPL) and the existing shareholders of UEPL (an investment fund managed by Ashoka Buildcon Limited and Morgan Stanley India Infrastructure). Acquisition of 100 per cent stake in UEPL,” MGL said in an exchange filing.
This acquisition will enable MGL to expand into new geographies including Ratnagiri, Latur and Osmanabad in Maharashtra and Chitradurga and Davangere in Karnataka, thereby providing new avenues for long-term growth of the natural gas distribution company. It will also help expand the footprint of MGL in terms of scaling up its future business development activities to a larger network and customer base, the company said in a filing.
With this acquisition, MGL has made its first inorganic entry, highlighting Citi. This transaction doesn’t come cheap, but is strategically positive and could improve the natural gas distribution company’s growth outlook.
Meanwhile, UEPL is a subsidiary of Ashoka Buildcon, and has been granted authorization from the Petroleum and Natural Gas Regulatory Board to develop city gas distribution business in Ratnagiri, Latur, Osmanabad and Chitradurga and Davangere. The branch is engaged in supplying natural gas to the domestic, commercial, industrial and transportation sectors.
Reacting to the news of the acquisition, shares of the highway developer were trading at Rs 78.29, up 2.9 per cent, on the BSE.
What should investors do now?
Citi has maintained ‘buy’ stance on Mahanagar Gas with a target price of Rs 1,030 per share. The gas distribution company made its first inorganic entry by acquiring 100 per cent stake in Unison Enviro, the city gas arm of Ashoka Buildcon.
The transaction—MGL’s first acquisition—isn’t cheap, but is strategically positive and could improve the growth outlook for natural gas distribution company, broking and research firm Citi, said in a note to clients.
While the headline valuation is at 6.4 times the trailing price to book, Citi views the deal positively. The acquisition of the city gas distributor is still at an early stage, but the purchase could be a good use of cash by improving MGL’s growth outlook.
MGL’s strong established presence in Maharashtra could provide it geographical synergy and also change the perception about the perceived lack of growth aggressiveness of the company.
MGL has been supplying natural gas through Compressed Natural Gas (CNG) for vehicles and Piped Natural Gas (PNG) to domestic, commercial and industrial consumers in Mumbai, Navi Mumbai, Thane and adjoining areas and in Raigad district .
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