Shares of city gas distributor companies such as Mahanagar Gas Ltd, Indraprastha Gas, Gujarat Gas, and Adani Total Gas witnessed sharp selling pressure on Wednesday after a reduction in the price of compressed natural gas (CNG) by MGL. State-run Mahanagar Gas Ltd (MGL) on Tuesday cut CNG prices by ₹2.5 per kg to ₹73.50 per kg, effective from midnight of March 5, citing a dip in gas input costs.
The revised CNG price now offers savings of 53% compared to petrol and 22% compared to diesel at current price levels in the financial capital, Mumbai. The reduction in the gas cost will boost the consumption of natural gas in the transportation sector, the company said in a release last evening.
Weighed down by the cut in gas prices, shares of MGL declined as much as 16.6% to hit a low of ₹1,305 on the BSE. The sentiment was further dented after global brokerage Citi downgraded the stock to 'Sell' from 'Buy' and cut the price target to ₹1,405 from ₹1,480 estimated earlier.
Meanwhile, shares of Indraprastha Gas Ltd (IGL) declined 7.4% to touch an intraday low of ₹424.30 on the BSE. While shares of Gujarat Gas tumbled as much as 6.45% to ₹555.55, Adani Total Gas stock price dipped 2.3% to day’s low of ₹996.
Citi in its report said that city gas distribution companies, such as MGL, are more susceptible to the government’s regulatory changes. "Oil Minister Hardeep Puri has been emphasising that the full benefits of natural gas sector reforms haven't reached end customers. As the government stays "committed" to ensuring compliance by city gas companies for affordable rates, Mahanagar Gas' margins are more susceptible to any drastic steps undertaken by the government in the future due to the premium in margins it enjoys," the report notes.
Last month, the Petroleum and Natural Gas Regulatory Board (PNGRB) announced the formation of a high-level expert committee to review and strengthen consumer protection mechanisms within the city gas distribution sector to ensure fair trade and competition among players.
"The Petroleum and Natural Gas Regulatory Board announced in February 2024 that the board will be setting up a high-level expert committee to review the existing regulatory framework. This creates a potential overhang on the sustainability of high margins for city gas distributors," Citi says in a report.
In the third quarter ended December 31, 2023, MGL posted a consolidated net profit of ₹317.18 crore, up 84% against ₹172.07 crore recorded in the year-ago period amid lower gas costs. Sequentially, the net profit dropped marginally from ₹338.50 crore in the September quarter of the current fiscal.
The revenue from operations fell to ₹1,723.77 crore from ₹1,838.44 crore in Q3 FY23, while EBITDA rose 72.27% YoY to ₹496.76 crore during the December quarter of FY24. Sequentially, the revenue and EBITDA dropped 0.1% and 6.3% due to decline in margins due to CNG and PNG price reduction undertaken in early-October.
The company’s total volume stood at 3.671 mmscmd (million metric standard cubic metres per day), up 2.69% percent compared to the previous quarter. The management expects volume growth to continue given the conversion rate and fuel price differential.
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