MGL, IGL & other CGD stocks plunge up to 15% after cut in priority gas allocation

Shares of Mahanagar Gas, Indraprastha Gas, and Gujarat Gas among other city gas distribution (CGD) companies cracked up to 15% on Monday after the government cut the Administered Price Mechanism (APM) allocation to CGD players by 20% for the second straight month. This led multiple analysts to downgrade their ratings on CGD stocks.

Indraprastha Gas share price and Mahanagar Gas share price plunged up to 15% each, while Gujarat Gas stock price dropped 8% and Adani Total Gas stock price declined 4.4% in early trade on November 18.

“The revised domestic gas allocation to the company is approx. 20% lesser than the previous allocation which will have an adverse impact on profitability of the company,” Indraprastha Gas said in a regulatory filing.

According to analysts, a further 18–20% reduction in APM gas allocation to CGDs, over and above the 13–14% de-allocation announced last month, is a big blow to the structural growth of the sector.

Nuvama Institutional Equities noted that while a gradual APM de-allocation was likely over the long term, the pace of de-allocation has been faster than expected by the Street.

“With APM allocation falling to ~30–35% for the sector, assuming the shortfall being bridged by higher New Well Gas (NWG) price of $8–9 per mmbtu (about half) and balance by spot LNG at $14 per mmbtu, we expect overall input gas cost to rise by ₹2–6 per scm, which could affect CGDs' FY26E EBITDA by 43–63% in the absence of price hikes,” said the brokerage firm.

Impact on CGD Companies

Indraprastha Gas (IGL): Due to IGL’s high share of priority sector volumes and relatively lower base margins than MGL, Nuvama forecasts its earnings shall be most vulnerable to APM de-allocation. It estimates an adverse gross margin impact of ₹2–9 per scm based on the expected increase in gas costs depending upon the source of replacement. This translates to an EBITDA downside of 21–104% from earlier estimates prior to the twin one-time APM allocation reductions.

Mahanagar Gas (MGL): Nuvama estimates an adverse gross margin impact of ₹2–10 per scm based on a likely rise in gas costs depending upon the source of replacement. This translates into an EBITDA downside of 16– 73% from earlier estimates prior to the twin one-time APM allocation reductions.

Gujarat Gas: The brokerage firm estimates an adverse gross margin impact of ₹1–4 per scm for Gujarat Gas based on a likely increase in gas costs depending upon the source of replacement. This translates to an EBITDA downside of 17–68% from earlier estimates prior to the twin one-time APM allocation reductions.

Ratings Downgrades

Nuvama Equities downgraded Indraprastha Gas shares to ‘Reduce’ and cut the target price to ₹369 per share from ₹513 earlier. It downgraded Mahanagar Gas shares to ‘Reduce’ and lowered the target price to ₹1,164 from ₹1,978 earlier.

The brokerage firm downgraded Gujarat Gas shares to ‘Hold’ and cut the target price to ₹509 per share from ₹666 earlier.

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