Mahanagar Gas gains 23% on listing day, closes at Rs 520

The line-up of companies with a healthy show on listing day seems to be increasing. On Friday,

Mahanagar Gas (MGL) made its debut at Rs 540 a share on the bourses, a 28 per cent premium over

the issue price of Rs 421 a share.

It hit a high of Rs 549 within minutes of listing, edging lower in trade. It closed at Rs 519.9, a gain of

23 per cent over the issue price. Grey market (parallel channels, legal but not intended by the issuer)

operators had estimated MGL would list at a premium of around 30 per cent over the initial public

offering (IPO) price.

Most recent IPOs have seen good investor demand and the stocks have done well after listing. Of

the 11 listed this year, seven had double-digit returns on listing day. The previous three debuts, for

instance, of Equitas Holdings, Ujjivan Financial Holdings and Parag Milk Foods, ended with day-one

gains of between 10 per cent and 23 per cent. These have also seen handsome gains after listing and

are now up 61 per cent, 90 per cent and 29 per cent, respectively.

“Strong fundamentals of the company (MGL) has attracted a strong anchor book, as well as retail

and high net worth participants,” said V Jayasankar, head of equity capital markets, Kotak

Investment Banking. “Brexit is behind us and we expect a strong pipeline of companies to hit the

capital market in the next few months. Investors are primarily looking to invest in companies with

good management, strong operating cash flows and good growth prospects.”

MGL mopped Rs 1,039 crore through its IPO, subscribed 65 times, with strong demand across

investor segments. The qualified institutional buyer segment was subscribed around 73 times, high

net worth (meaning, wealthy) individual segment saw a whopping 192-times subscription and the

retail (small investor) category saw nearly six times more demand than the shares on offer. The

17.34-million share offering attracted a little over a billion bids, worth around Rs 47,000 crore.

Analysts said the company's attractive valuations, compared to peers, and growth opportunities in

the under-penetrated city gas distribution space attracted investors to the IPO. It was entirely an

offer for sale by existing investors GAIL and BG Asia, both of which sold shares worth around Rs 500

crore each.

After listing, the shareholding of these two firms will fall from 45 to 32.5 per cent each. The

government of Mahara-shtra owns 10 per cent stake in MGL. The company had priced its offering

between Rs 380 and Rs 421 a share.

MGL, a joint venture between state-owned GAIL and BG Asia Pacific Holdings (formerly British Gas

Asia Pacific), is one of the largest city gas distribution companies in India. MGL is presently the sole

authorised distributor of compressed natural gas and piped natural gas in Mumbai, its adjoining

areas and Raigad district in Maharashtra.

The IPO was handled by Kotak Mahindra Capital and Citigroup Global Markets.

“At the upper limit of Rs 421, the stock would be valued at 12.2 times the FY18 (estimated) earnings.

Indraprastha Gas is currently trading at 15 times its FY18 (estimated) earnings of Rs 41.6. At 15 times

the FY18 earnings of Rs 34.6, we value MGL at Rs 518,” Elara Capital had said in a recent note on

MGL.

NGS INDIA