Why MGL, IGL shares dove 12-15% nonetheless Gujarat Gas provide remained unfazed

Shares of Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) dove roughly 15 p.c in Friday’s occupation after each metropolis fuel suppliers verified a 20 p.c impromptu lower in allowance of economical APM fuel for the CNG part with consequence from October 16. Gujarat Gas likewise dropped, nonetheless the losses had been restricted to 2 p.c.

The monitorings of MGL and IGL anticipate a unfavourable impact on their success and stay in conversations with essential stakeholders to cut back the impact. Shares of MGL dove 14.58 p.c to strike a decreased of Rs 1,503.80 on BSE. IGL toppled 12.88 p.c to Rs 439.40 diploma. Gujarat Gas was down 1.39 p.c at Rs 562.10.

The 2 provides, JM Financial claimed, likewise dropped amidst the continual lower symmetrical of APM fuel allowance by 6-8 p.c per yr for CNG and residential PNG part, as the entire improvement is being glad utilizing expensive non-APM fuel sources.

“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 considerable de-rating event for CNG-dominated CGD companies like IGL and MGL– as CNG includes 75 p.c of their portions. It considerably will increase unpredictability on the federal authorities’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 probability of CGDs acquiring affected is almost definitely to be an architectural consequence. The recent development, over 5 years, would counsel APM allowance would definitely be to completely no, except a transparent plan regulation had been to be launched to depart out CGDs from the allowance lower, it claimed.

While this single lower is simply partially unfavorable, an architectural lower is a considerable unfavorable for the CGD service, the brokerage agency included, because it decreased goal quite a few by 20 p.c and downgrade IGL and MGL to Sell, and Gujarat Gas to ‘Hold’.

MGL would definitely be the least affected amongst CGDs supplied its larger proportion of economic gross sales, it claimed.

Emkay Global nonetheless sees upside in MGL and preserved its favorable sight on the availability amidst stable amount improvement, whereas sustaining 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.