2 weeks ago
HomeMarket NewsMahanagar Gas, other CGD shares fall up to 5% in reaction to another APM gas allocation cut
The Administered Price Mechanism (APM) gas allocation to these companies was cut yet again on Tuesday between 18% and 20%, reducing the total allocation to 40% from the current 51%.
Shares of city gas distribution (CGD) companies such as Indraprastha Gas Ltd. (IGL) and Mahanagar Gas Ltd. (MGL) and Adani Total Gas Ltd. will be in focus during Wednesday's trading session, following a fresh reduction in the allocation of cheaper domestic gas under the Administered Price Mechanism (APM), effective April 16.
The Administered Price Mechanism (APM) gas allocation to these companies was cut yet again on Tuesday between 18% and 20%, reducing the total allocation to 40% from the current 51%.
With this, the increase in allocation seen in January 2025, is now reversed. Over the last 12 months, APM gas allocation to these companies has halved. APM gas is cheaper as it is used in priority segments.
City Gas companies have noted that this move will have an "adverse impact" on their profitability and the reduction in APM volumes will be compensated by new well / well intervention gas.
According to global brokerage firm CLSA, the companies may need to raise CNG prices by around ₹0.6 per kg to offset the increased cost.
Upstream player ONGC stands to benefit from this reclassification, as its share of the higher-priced New Well Gas is set to increase from 11% to 17% of its standalone production.
Meanwhile, Jefferies has maintained an 'Underperform' rating on MGL, with a target price of ₹1,220.
The foreign brokerage said that the reduction in APM gas allocation, which equates to a 26% drop in CNG volume allocation, is a negative for both MGL and IGL.
The replacement gas comes at a 30% premium, and Jefferies believes that despite recent price hikes in CNG and PNG, the full extent of the increased feedstock cost is unlikely to be passed on to consumers.
As a result, the brokerage expects MGL's earnings per share to remain flat over FY25–27, as robust volume growth is offset by compressed margins.
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