Shares of Indraprastha Gas, Mahanagar Gas, and Gujarat Gas, which supply CNG and PNG in India, have fallen by 18%. This drop is due to the government reducing the gas allocated to these companies by 20% for the second consecutive month.
This cut in allocation will significantly increase the cost for these companies. As a result, they will likely pass on the added expense to customers. According to brokerage firm Citi, city gas companies may raise CNG prices by 10%, or about Rs 7 per kg.
Shares of Indraprastha Gas and Mahanagar Gas dropped by 18%
On Monday, November 18, 2024, Indraprastha Gas (IGL) saw a 20% drop, falling to Rs 324.70 from Rs 405.80. It is currently trading at Rs 330.45, down 18.63%. Mahanagar Gas (MGL) fell by 18.08%, dropping to Rs 1075.25 and now trades at Rs 1132.10, down 13.75%. Gujarat Gas also saw a decline of 9%, dropping to Rs 442.50.
Why Did Shares Fall?
The fall is due to the government’s 20% reduction in gas allocation for city gas companies starting November 16, 2024. This cut impacts CNG and domestic PNG distribution. Indraprastha Gas confirmed that the reduction would hurt its profits.
Higher Costs for City Gas Companies
With reduced gas allocations, city gas companies like IGL and MGL may face higher costs, which could lead to price hikes. According to Citi, CNG prices could rise by Rs 7 per kg.
Brokerage Firms Lower Target Prices
JP Morgan reduced Mahanagar Gas’s target price to Rs 1300 and Indraprastha Gas’s to Rs 343. Both stocks were downgraded to “neutral.” Higher costs and less profit margin are expected.
Citi and Jefferies Adjust Forecasts
Citi predicts CNG prices will rise by Rs 7 per kg, further squeezing profits. Jefferies lowered target prices for Mahanagar Gas to Rs 1130 and Indraprastha Gas to Rs 295.
Challenges for Gas Companies
With higher costs and potential price hikes, city gas companies are facing challenges. This may lead to more unpredictability in their stock prices in the coming months.