Tue Nov 19 08:58:46 UTC 2024: ## City Gas Distribution Stocks Plunge After Government Cuts Gas Allocation

**Mumbai, November 18** – Shares of major city gas distribution (CGD) companies plummeted on Monday following a 20% reduction in Administered Price Mechanism (APM) gas allocation for the second consecutive month. This unexpected cut, impacting companies like Indraprastha Gas (IGL), Mahanagar Gas (MGL), and Gujarat Gas, sent shockwaves through the market.

IGL and MGL saw their share prices fall by as much as 15%, while Gujarat Gas dropped 8% and Adani Total Gas declined 4.4% in early trading. The reduced allocation, according to IGL’s regulatory filing, will negatively impact the company’s profitability.

Analysts have reacted strongly to the news, with Nuvama Institutional Equities highlighting the significantly faster-than-expected reduction in APM gas allocation. This, they argue, is a major blow to the sector’s structural growth. The brokerage firm estimates that the overall input gas cost for CGDs could rise by ₹2–6 per scm due to the need to replace the reduced APM allocation with more expensive New Well Gas (NWG) and spot LNG.

This cost increase is expected to severely impact the companies’ earnings. Nuvama forecasts a substantial EBITDA (earnings before interest, taxes, depreciation, and amortization) downside for FY26E: 43–63% for the sector as a whole, with IGL facing the most significant impact (21–104%) due to its high share of priority sector volumes and lower base margins. MGL and Gujarat Gas are also projected to experience significant EBITDA declines (16–73% and 17–68%, respectively).

In response, Nuvama Institutional Equities downgraded IGL and MGL shares to ‘Reduce’, lowering their target prices significantly. Gujarat Gas was downgraded to ‘Hold’ with a reduced target price.

Investors are urged to consult with financial advisors before making any investment decisions based on this news.

Read More