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City Gas Stocks plummet: IGL, MGL see 10% losses, Gujarat Gas drops 4% on APM allocation cuts and surging gas costs

City gas distributor (CGD) stocks plummeted on November 18 following a second reduction in APM gas allotment within a month. Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) shares fell 10% each, while Gujarat Gas stock declined by over 4%.

IGL shares led the fall on the BSE, hitting the lower circuit limit at ₹365.40, while MGL's stock touched ₹1,180.30. Gujarat Gas shares dropped 4.15% to ₹466. Analysts said that IGL's high exposure to priority sector volumes and lower base margins compared to MGL have been key vulnerabilities.

Gujarat Gas, with its industrial segment, fared marginally better due to its lower dependence on priority sector volumes and use of contracted and spot LNG, which mitigate the impact. According to market observers, Gujarat Gas is better positioned to replace APM shortfalls more efficiently than IGL and MGL.

According to Nuvama Institutional Equities, a major challenge is the 35% reduction in APM gas allocation over the past month. "The government has cut cheap $6.5/mmBtu APM gas for the CGD sector by a further 18% after a similar reduction last month. This development significantly impacts the market, which is likely to anticipate further cuts," it noted.

Brokerages cut CGD stocks. JPMorgan reduced IGL's target price to ₹343, downgrading it to 'Underweight' while MGL's target price was cut to ₹1,300 and rated 'Neutral'. Jefferies set the target price for MGL to ₹1,130 and for IGL at ₹295, citing that "cheap domestic gas will soon be fully withdrawn."

Citi highlighted that the biggest challenge remains to pass on increased costs without affecting CNG economics. " It estimated a price hike of over ₹7 per kg might be required if excise duty relief is not provided. Emkay Global reported that the government's cost-breakup requirements for retail price adjustments could worsen the situation, estimating a 46%/25% hit on IGL/MGL's EBITDA per scm without immediate pricing adjustments.

Emkay Global noted, “Excise duty alignment between CNG, petrol and diesel can be done to avoid CNG price hikes amid a $70-75 per barrel oil price scenario, if the current margins and return ratios of CGDs are to be protected. Due to the lack of clarity, we now assume a 14 per cent RoE model for both IGL/MGL and cut our EPS estimates by 17 per cent/25 per cent.”

Nuvama cut IGL and MGL to 'Reduce' and Gujarat Gas to 'Hold,' slashing FY25–27 EBITDA estimates by 4–22%. The target price was also reduced by 23–41%. The outlook for the CGD sector does not look bright with high gas costs, regulatory friction, and an uncertain pricing strategy. Companies are forced to provide margin protection as they compete for alternative sources of gases.