Following the government’s 20% reduction in the Administered Price Mechanism (APM) gas allocation for city gas distribution (CGD) firms for the second consecutive month, shares of Mahanagar Gas Limited (MGL) and Indraprastha Gas Limited (IGL) fell sharply on Monday. MGL’s shares fell 18% to Rs 1,075 in the early trading session, while IGL’s shares fell to Rs 324.8.

Why Do Brokers Lower Ratings?
In response to the events, brokers drastically reduced their target prices for MGL and IGL by 35% and 31%, respectively. MGL’s long-term EBITDA/scm average has been lowered down by 16 percent to Rs 10.42, while IGL’s EBITDA per standard cubic meter (scm) has been decreased by 26.4% for FY25.

Slower volume growth, thinner profit margins, and a greater dependence on expensive liquefied natural gas (LNG) as a result of a decreased supply of APM gas are the experts’ explanations for the downward adjustment.

Does this affect CNG prices and margins?

CGD enterprises are now frantically searching for alternatives due to the reductions in APM gas allocation, which have resulted in increased expenses and anticipated hikes in CNG pricing. Analysts caution that growing CNG costs may impact customer affordability and further reduce these companies’ profit margins.

IGL’s Q2 Results Forecasts

Although revenue is anticipated to increase by 9% in FY25, profit after tax (PAT) is predicted to decrease by 26%. It is anticipated that EBITDA margins would decline to 11%.

MGL Q2 Results Forecasts

Revenue is predicted to rise by 7.5%, while PAT is predicted to decline by 21%, and EBITDA margins were lowered from the initial forecast of 24% to 22%.

Will the cost of CNG drop?

Even though the government supports CNG as a cleaner fuel, the CGD industry has encountered uneven policy actions. According to analysts, CNG costs may drop by Rs 3–4 per kilogram if excise duties were reduced by 5–6%.