IGL, MGL tumble up to 15% on APM gas allocation cut

Shares of city gas distribution (CGD) companies, such as Indraprastha Gas and Mahanagar Gas, fell by up to 15% following the announcement that the government will reduce priority gas allocation to these companies.

Mahanagar Gas Ltd ( MGL) shares fell by 14.5% to today’s low of Rs 1,503.80, while Indraprastha Gas Ltd ( IGL) tumbled 13% to Rs 439.40 on the BSE.

According to a policy guideline from the Ministry of Petroleum and Natural Gas, domestically produced Administered Price Mechanism (APM) natural gas will be allocated to CGD companies for priority segments such as Domestic PNG and CNG (transport).

The policy specifies that CGD entities will receive gas only based on the available quantity allocated to GAIL (India) Limited for these segments.

“Allocation to the Company for CNG (Transport) has been reduced by ~20%, effective October 16, 2024, compared to the previous average quarterly APM allocation. This being major reduction in allocation, will have an adverse impact on the profitability of the Company,” said MGL in a filing to the exchanges.

To address this shortfall, MGL stated that it is exploring options to source gas through domestically produced High-Pressure High Temperature (HPHT) gas, New Well/Well Intervention gas (NWG) from ONGC, and benchmark-linked long-term gas contracts.

“Based on communication received by the Company from GAIL (India) Ltd. (the nodal agency for domestic gas allocation), this is to inform that there has been a major reduction in domestic gas allocation to the Company effective from October 16, 2024. The revised domestic gas allocation to Company is approx. 21 % lesser than previous allocation,” informed IGL in a filing.

The reduction in the gas allocation is likely to hurt profitability.

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