MGL, IGL: Gas stocks mixed after govt hikes domestic gas allocation

Gas stocks were a mixed bag in Friday's (January 10, 2025) trade after state-owned GAIL (India), the nodal agency for domestic gas allocation, informed the Administered Price Mechanism (APM) price has been revised which will be effective January 16, 2025. The announcement was made in the last hour of trading on Thursday.

 

APM gas is natural gas sold at a government-regulated price, significantly lower than market rates. It is allocated to various sectors, including city gas distributors, to ensure affordability for essential services like CNG and piped natural gas (PNG). A reduction in APM gas allocation forces companies to buy more expensive gas on the open market, potentially driving up prices for consumers.

 

 

Around 1:31 PM, Mahanagar Gas (MGL) shares were up 2.21 per cent at Rs 1,301.3 per share, Indraprastha Gas (IGL) was down 0.01 per cent at Rs 4,18.65 per share and Adani Total Gas shares were down 0.39 per cent at Rs 679.3 per share on BSE. In comparision, the BSE Sensex was down 0.07 per cent at 77,562.73.   In two days, MGl shares have gained over 3 per cent, IGl shares over 2 per cent, while, Adani Total Gas has lost over 4 per cent. 

 

For Mahanagar Gas, Gail made an upward revision in the APM price by 26 per cent which will be effective from January 16, 2025, thus, increasing allocation for compressed natural gas (CNG) from 37 per cent to 51 per cent. 

 

"As per the communication received from GAIL (India) Limited (the nodal agency for domestic gas allocation), the domestic gas at APM price to Mahanagar Gas Limited (MGL) has been increased by 26 per cent with effect from January 16, 2025, thus increasing allocation for CNG from 37 per cent to 51 per cent," the filing read. 

 

Similarly, for Adani Total Gas, Gail made an upward revision in APM price by 20 per cent. "This upward revision will have a positive impact on the Company and will help in stabilising the retail prices to end consumers," Adani Total Gas filing read. 

 

For Indraprastha Gas, Gail increased the APM price by 31 per cent, increasing the share of domestic gas in the CNG segment from 37 per cent to 51 per cent. 

 

"As per the communication received from Gail (India) Limited (the nodal agency for domestic gas allocation), this is to inform that the domestic gas allocations to IGL (the Company) have been revised upwards by 31 per cent with effect from January 16, 2025, increasing the share of Domestic Gas in CNG Segment from 37 per cent to 51 per cent," IGL filing read.   As per JM Financial, the government has partly raised domestic gas allocation for the CNG business to around 51 per cent, but this is still significantly below 70 per cent that existed before October 16, 2024. Hence, out of 6mmscmd of APM allocation cuts for

the city gas distributor sector, it seems only 21 per cent of cuts have been reversed. This partial restoration of APM allocation is incrementally positive for the city gas distributor sector. But what’s critical is the extent of CNG price hikes that these companies could undertake to pass on the net reduction in APM allocation from 70 per cent to 50 per cent, which, as per JM Financial, requires CNG price hike of Rs 4-5 per kg. 

 

Last week, the government slashed the allocation of natural gas used for liquefied petroleum gas (LPG) production and diverted the low-priced fuel to city gas retailers like Indraprastha Gas Ltd and Adani-Total Gas Ltd to meet a part of their requirement for CNG/piped cooking gas supplies, according to an official order.

 

Meanwhile, JM Financial maintained 'Sell' on IGL and Mahanagar Gas due to structural risk to pricing power in CNG.