Why MGL, IGL shares dove 12-15% however Gujarat Gas supply remained unfazed

Shares of Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) dove approximately 15 percent in Friday’s profession after both city gas suppliers verified a 20 percent impromptu decrease in allowance of economical APM gas for the CNG section with result from October 16. Gujarat Gas likewise dropped, however the losses were restricted to 2 percent.

The monitorings of MGL and IGL anticipate a negative effect on their success and remain in conversations with crucial stakeholders to reduce the effect. Shares of MGL dove 14.58 percent to strike a reduced of Rs 1,503.80 on BSE. IGL toppled 12.88 percent to Rs 439.40 degree. Gujarat Gas was down 1.39 percent at Rs 562.10.

The 2 supplies, JM Financial claimed, likewise dropped amidst the continuous decrease symmetrical of APM gas allowance by 6-8 percent per year for CNG and residential PNG section, as the whole development is being satisfied using costly non-APM gas resources.

“The latest cut is likely to result in 4 mmscmd of cheap $6.5 per mmBtu APM gas being replaced with expensive gas costing $10-14/mmBtu. This is likely to result in weighted average gas cost for the CNG business rising by $0.7-1/mmBtu, which implies a CNG price hike of Rs 3.5-5/kg or 5-7 per cent. This is likely to further erode pricing power in the CNG business and pose a risk to volume growth and margins,” JM Financial claimed.

Further, it’s a substantial de-rating occasion for CNG-dominated CGD firms like IGL and MGL– as CNG comprises 75 percent of their quantities. It substantially increases unpredictability on the federal government’s future plan procedures.

“Hence, we reduce IGL and MGL’s FY25-27 Ebitda by 10-13 per cent and cut target price to Rs 435 for IGL and to Rs 1,400 for MGL; we downgrade both IGL and MGL to Sell. However, we maintain Buy on Gujarat Gas (revised target price of Rs 650) as 60 per cent of its volume comes from the industrial segment,” it claimed.

Antique Stock Broking claimed the likelihood of CGDs obtaining affected is most likely to be an architectural result. The fresh advancement, over 5 years, would suggest APM allowance would certainly be to absolutely no, unless a clear plan regulation were to be released to leave out CGDs from the allowance cut, it claimed.

While this single cut is just partially unfavorable, an architectural cut is a substantial unfavorable for the CGD service, the brokerage firm included, as it reduced target numerous by 20 percent and downgrade IGL and MGL to Sell, and Gujarat Gas to ‘Hold’.

MGL would certainly be the least affected amongst CGDs provided its greater percentage of commercial sales, it claimed.

Emkay Global still sees upside in MGL and preserved its favorable sight on the supply amidst solid quantity development, while maintaining its unfavorable sight on IGL. “In the near term, the upcoming Maharashtra election may delay MGL’s pricing action, but with a history of pricing proactiveness, the adverse profitability impact should be transitory,” claimed Emkay Global.