Mahanagar Gas, Gujarat Gas, and Indraprastha Gas fall up to 20% intraday; here’s why

Shares of the city gas distribution companies plunged up to 20% on Monday, November 18, after the central government cut the administered price mechanism (APM) gas allocation to them for a second month in a row.

In a surprise move over the weekend, the government cut the APM gas allocation to these city gas distribution companies by another 20% after reducing it by around 14% in the previous month. The total APM gas availability for these companies now stands at 40-45%.

APM gas is natural gas that is sold at a government-regulated price, which is lower than market rates. The price of APM gas is set by the Petroleum Planning and Analysis Cell (PPAC) which comes under the Ministry of Petroleum and Natural Gas.

A cut in the APM gas allocation means that city gas distribution companies will now have to depend on a combination of other higher-priced gas sources, such as spot LNG, High-Pressure High-Temperature gas, and gas from new fields.

This increases the cost of raw materials for these companies, thereby hitting their margins. Analysts believe that a cut in the APM gas allocation would affect the earnings of city gas distribution companies in the coming quarters unless significant price hikes are taken to transfer the burden to end-consumers.

According to various estimates, the recent APM gas allocation cuts could require price hikes of over ₹7 per kg to maintain margins. However, upcoming state elections may restrict these companies from making such a move.