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Previously, provides had been reduce by about 21 per cent efficient October 16.
International brokerage Jefferies downgraded MGL and IGL to ‘underperform
City gasoline distribution firms’ shares crashed 20 % within the morning session on November 18 after the federal government reduce the Administered Price Mechanism (APM) allocation to CGD gamers by 20 % for the second month in a row.
At 10.20 am, shares of IGL cracked 20 % to cite Rs 324.7, whereas MGL inventory was round Rs 1,150.75 on the NSE, down 12 %. Gujarat Gas shares sank over 5.8 % to commerce at Rs 458 apiece.
Subsequent Cuts in Gas Allocations
IGL and MGL have reported 20 % and 18 % extra cuts, respectively, over the 21 % reduce which was introduced earlier on October 16, whereas Adani Total Gas has indicated a 13 % reduce.
Government’s Role in Gas Supply Reductions
The authorities has for the second time in a month reduce provides of cheaper domestically produced pure gasoline to CNG retailers, who warned of their profitability being hit.
IGL’s Response to Gas Allocation Cuts
IGL, which retails CNG to vehicles and piped cooking gasoline to households within the nationwide capital and adjoining cities – in a inventory alternate submitting stated home provides have been reduce by about 20 per cent efficient November 16.
Previously, provides had been reduce by about 21 per cent efficient October 16.
Impact on Profitability Due to Gas Allocation Cuts
“Based on one other communication obtained by the corporate from GAIL (India) Ltd (the nodal company for home gasoline allocation), that is to tell that there was additional discount in home gasoline allocation to the corporate efficient from November 16, 2024. The revised home gasoline allocation to the corporate is approx. 20 per cent lesser than earlier allocation which can have an antagonistic impression on profitability of the corporate,” IGL stated.
IGL will get home gasoline allocation for assembly the requirement of CNG gross sales volumes on the pricing mounted by the federal government (presently at USD 6.5 per million British thermal unit).
The various to that is to make use of imported gasoline, which is twice the home charge.
“The firm is exploring all choices to deal with the problem,” IGL stated.
Challenges of Declining Domestic Gas Production
Natural gasoline pumped from beneath the bottom and from beneath the seabed from websites starting from the Arabian Sea to Bay of Bengal inside India is the uncooked materials that’s become CNG on the market to vehicles and piped cooking gasoline to households.
Production from legacy fields, whose worth is regulated by the federal government and that are used to feed metropolis gasoline retailers, has been falling by as much as 5 per cent yearly as a result of pure decline that has set in. This has led to provide cuts to metropolis gasoline retailers.
Impact on CNG Supply
While the enter gasoline for piped cooking gasoline that households get is protected, the federal government has reduce provide of uncooked materials for CNG. Gas from legacy fields used to fulfill 90 per cent of the demand for CNG in May 2023 and has progressively fallen. The provide was reduce to simply 50.75 per cent of the CNG demand starting October 16 from 67.74 per cent final month. Now it has additional been diminished.
Potential for CNG Price Hike
Buying imported and costlier liquefied pure gasoline (LNG) to make up for the shortfall could result in a hike in CNG costs that varies from Rs 4-6 per kg, sources stated.
Retailers Hold Off on Price Increase
For now, the retailers haven’t raised CNG charges as they’re engaged with the Ministry of Petroleum and Natural Gas to discover a resolution, they stated.
Brokerages React to Sharp Cuts
According to varied brokerages, the steep tempo of the cuts, coupled with no coverage communication poses a pointy unfavourable for town gasoline distribution firms. Based on the earlier communication, following the sharp reduce in October, the additional tempo of cuts was anticipated to be extra average and tapered.
“CGD firms highlighted that costs can be hiked post-festive season to partially get well misplaced margins. However, no motion has been seen thus far and with this extra reduce, the margin outlook has deteriorated with no near-term readability on the plan of action,” stated Emkay Global.
“The implied non-APM blended gasoline worth for the businesses had been $13-14/mmbtu, therefore, alternative by such gases would impression blended EBITDA/scm by Rs 2.7-3 and necessitate not less than an Rs 4.5-4.8/kg hike,” added the brokerage.
Profitability Outlook for FY26
According to Nuvama Institutional Equities, with no worth hikes and rising prices of enter gasoline for the businesses, the EBITDA in FY26 might take a 43–63 % hit. The home broking agency downgraded IGL and MGL to ‘cut back’, whereas giving Gujarat Gas a ‘maintain’ name.
Brokerage Downgrades Amid Lower Gas Allocations
International brokerage Jefferies downgraded MGL and IGL to ‘underperform’ with goal costs reduce to Rs 1,130 and Rs 295 per share, respectively. Lower APM allocation means that low cost home gasoline will quickly be utterly taken away. The brokerage reduce the EPS estimates on MGL, IGL and Gujarat Gas by 31 %, 27 % and 19 %, respectively.
