City gas distributor stocks tumble amid margin concerns; Mahanagar Gas falls over 16%, Indraprastha Gas down 7%
Upstox
2 min read • Updated: March 6, 2024, 3:08 PM
Summary
Shares of city gas distribution companies witnessed a steep fall today after Union Petroleum Minister, Hardeep Puri, said that the full benefits of reforms in the natural gas sector are yet to reach end customers. Mahanagar Gas also announced a CNG price reduction of ₹2.5 per kg.
Shares of city gas distributor companies were trading under pressure after Union Petroleum and Natural Gas Minister, Hardeep Puri, said that the full benefits of natural gas sector reforms haven't reached end customers and the government might take drastic steps to ensure consumers are benefited.
As per experts, any significant step by the government in the future would impact the margins and profitability of city gas distributors, including Mahanagar Gas and Indraprastha Gas.
As a result, shares of Mahanagar Gas tumbled more than 16% intraday to hit a day low of ₹1,297.30 per share, while Indraprastha Gas is down 6.5%, trading around ₹428.4 per share. Meanwhile, Gujarat Gas shares declined 5.3% today.
What did the oil minister say?
Speaking at an event, Puri said that current measures planned by the government will lead to a three-fold increase in natural gas consumption from 185 MMSCMD to 500 MMSCMD by 2030.
Monopolies in the licensed areas have led to strong profits for gas firms like MGL in the past. However, Puri pressed for the need to ensure reform enforcement to benefit the end consumer.
Until 2014, only 57 geographical areas (GAs) were authorised for the development of a city gas distribution (CGD) network in the country. The government has authorised 250 GAs within the last ten years, and the entire country has been authorised to develop a CGD network.
The comment triggered concerns about pressure on the margins of city gas distribution companies like Mahanagar Gas, Indraprastha Gas and Gujarat Gas.
CNG price cut by Mahanagar Gas could impact margins further
Another key reason that triggered the fall in these stocks is the reduction in CNG price by Mahanagar Gas. Yesterday, the company announced a reduction of ₹2.5 per kg in CNG prices, bringing it down to ₹73.5 per kg from the midnight of March 5.
The company said the prices have been slashed after a drop in the input cost. The CNG price cut was likely done to boost demand for natural gas in the transportation segment and promote environmental friendliness.
However, experts have turned cautious on the stock due to margin concerns after lowering of CNG prices in Mumbai. Indraprastha Gas is also expected to follow suit and reduce its gas prices.