Mon Nov 18 20:54:55 UTC 2024: ## City Gas Distributor Stocks Plunge After Second APM Gas Cut in a Month

**Mumbai, India –** Shares of leading city gas distributors (CGDs) Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL), and Gujarat Gas experienced significant declines on Monday following a second reduction in their allocated APM (Administered Price Mechanism) gas in as many months. IGL plummeted 18.89%, MGL fell 13.26%, and Gujarat Gas dropped 6.03%.

The government’s latest cut, a further 18% reduction in the already reduced allocation of cheap APM gas, has sparked concern amongst analysts and investors. This brings the total reduction in APM gas allocation to approximately 40% for IGL and MGL. While a gradual decrease was anticipated, the speed of the cuts has surprised the market, leaving CGDs scrambling for more expensive alternative gas sources.

Analysts at Nirmal Bang Institutional Equities, Nuvama Institutional Equities, JPMorgan, Jefferies, and Emkay Global Financial Services have all downgraded their ratings and price targets for the affected companies. The reduction in cheap APM gas will significantly impact profitability, especially for IGL and MGL, which have a high reliance on APM gas for their priority sector volumes (over 80%). Gujarat Gas, with a lower dependence on APM gas (less than 40%), is expected to be less severely affected due to its diversified sourcing strategy.

The increased reliance on higher-priced alternatives like New Well Gas (NWG) and spot LNG is projected to raise input gas costs by $2–6/scm, potentially slashing FY26E EBITDA by 43–63% for CGDs unless retail prices are increased. However, the government’s request for a detailed cost breakdown from CGDs, citing high margins compared to oil marketing companies (OMCs), before approving price hikes, has added to the negative sentiment. Analysts estimate that a price hike of over Rs 7 per kg might be necessary to offset the increased costs, a move that could impact CNG demand.

The lack of clarity regarding government support and the rapid pace of APM gas allocation cuts have left analysts largely pessimistic. While some believe that a gradual de-allocation of APM gas was expected in the long term, the current pace has caught the market off guard and precipitated the significant stock market reaction. Several brokerages have significantly lowered their earnings projections and target prices for IGL, MGL, and Gujarat Gas.

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