According to brokerages, the margin prognosis for CGDs has worsened as a result of this extra cut, and there is now no clear direction for the future.
Following the government’s 20 percent reduction in the Administered Price Mechanism (APM) allocation to CGD players for the second consecutive month, the shares of City Gas Distribution Companies plummeted more than 15 percent in the morning session on November 18.
Adani Total Gas has indicated a 13 percent cut, while IGL and MGL have reported 20 and 18 percent additional cuts, respectively, over the approximately 20 percent drop that was previously announced on October 16.
“The revised domestic gas allocation to Company is approximately 20 percent lesser than previous allocation which will have an adverse impact on profitability of the Company,” IGL stated.
IGL confirmed the “adverse” profitability hit and stated that it is looking into every possible solution. IGL recently stated that it is in “strong discussions” to raise gas prices and pass them along to consumers.
IGL and MGL shares fell 10% at 9.20 am to trade at Rs 365.25 and Rs 1,181.4 on the NSE, respectively. Gujarat Gas’s stock fell more than 4% to Rs 465.1 per share.
When the initial APM cut was implemented in October, there was significant selling pressure on IGL and MGL shares on the stock exchanges. As CGDs reveal that profitability will be hurt, the negative feeling is anticipated to persist after the plethora of downgrades and pessimism.
The rapid pace of the reduction and the lack of policy communication, according to some brokerages, provide a serious disadvantage for the city’s gas distribution businesses. According to earlier correspondence, a more gradual and tapered pace of cutbacks was anticipated after the October cut.
In order to partially regain lost margins, CGD companies announced that prices would be raised after the holiday season. But so far, nothing has been done, and this further cut has worsened the margin outlook with no immediate clarity on what to do,” Emkay Global stated.
“The implied non-APM blended gas price for the companies were $13-14/mmbtu, hence, replacement by such gases would impact blended EBITDA/scm by Rs 2.7-3 and necessitate at least a Rs 4.5-4.8/kg hike,” stated the brokerage.
According to Nuvama Institutional Equities, the EBITDA in FY26 would suffer a 43–63 percent damage if there are no price increases and the companies’ input gas costs continue to rise. The local broking firm gave Gujarat Gas a “hold” call and demoted IGL and MGL to “reduce.”
MGL and IGL were downgraded to “underperform” by international stockbroker Jefferies, which also lowered their target prices to Rs 1,130 and Rs 295 a share, respectively. Reduced APM allocation indicates the imminent elimination of inexpensive domestic gas. The brokerage lowered its EPS projections for Gujarat Gas, IGL, and MGL by 19%, 27%, and 31%, respectively.
