Mon Nov 18 15:54:28 UTC 2024: ## City Gas Stocks Plunge After Jefferies Downgrade, Allocation Cuts

**Mumbai, India** – Shares of Indraprastha Gas Ltd. (IGL) and Mahanagar Gas Ltd. (MGL), two major city gas distribution companies, plummeted on Monday following a downgrade by Jefferies and reduced domestic gas allocations. IGL’s stock fell nearly 10%, while MGL’s plunged 15%.

Jefferies slashed its target prices for both companies and downgraded IGL to “underperform” from “hold,” with a new target price of Rs 295 (a 26% downside), and MGL to “underperform” from “buy,” with a target price of Rs 1,130 (a 14% downside). The downgrades reflect concerns over consecutive reductions in domestic gas allocation from GAIL India Ltd.

This reduced allocation, tied to cuts in the subsidized APM (Administered Price Mechanism) gas, forces the companies to source more expensive gas on the open market, significantly impacting profitability. Jefferies predicts a potential complete cessation of domestic gas allocation by mid-2025. This follows an earlier October 2024 announcement of a 16-20% cut in domestic gas supply to the city gas sector, impacting IGL, MGL, and Adani Total Gas by 13-20%.

Analyst Soni Patnaik of JM Financial Services noted that the gas stocks have broken key support levels, indicating a 5-10% correction. While some analysts maintain a “buy” rating, a significant number now recommend “hold” or “sell,” reflecting the growing uncertainty surrounding the sector’s future. The reduced access to cheaper gas directly impacts the companies’ CNG and PNG operations, threatening their long-term viability. High trading volumes further underscore the market’s reaction to the news.

The situation highlights the vulnerability of city gas distributors reliant on subsidized gas and raises questions about the long-term sustainability of the current model.

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