Government Cuts Gas Allocation: Impact on Mahanagar Gas, IGL, and Adani Total Gas

Market Performance

Shares of key City Gas Distribution (CGD) companies, such as Mahanagar Gas, Indraprastha Gas, and Adani Total Gas, saw a notable decline on April 16, 2025, following the government's decision to reduce their priority gas allocation. This policy change had a direct impact on their stock prices.

As of 10:20 AM, the stock prices of these companies were:

• Mahanagar Gas: Rs 1,249.8, down by 5%
• Adani Total Gas: Rs 605, down by 0.9%
• Indraprastha Gas: Rs 173.78, down by 3%

The reduction in priority gas allocation, which is crucial for the companies' operations, came as a response to the depletion of domestic gas production. This move has placed additional pressure on the CGD companies, which rely on cheaper gas to ensure affordable services for their customers, particularly in domestic piped natural gas (PNG) and compressed natural gas (CNG).

Main News

The government has significantly reduced the allocation of APM (Administered Price Mechanism) gas to CGD companies. This move is in response to shrinking domestic gas production, which has impacted the overall gas supply. APM gas is traditionally sold at lower prices to CGD companies, helping keep essential services, such as PNG and CNG, affordable for consumers.

The government reduced the APM gas allocation by 15-20% for companies like Mahanagar Gas, Indraprastha Gas, and Adani Total Gas. It is now about 40% of the total allocation, down from the previous 51%.

This cut in gas allocation is expected to increase input costs for these companies, possibly leading to further price hikes in CNG. Given rising market-linked gas costs, CGD companies may find it difficult to maintain profit margins while striving for volume growth.

Company Details

Mahanagar Gas: Mahanagar Gas is one of the major players in the city gas distribution sector. The recent government decision to trim its priority gas allocation has caused its stock to decline, reflecting the market's concerns over the potential increase in operational costs.

Indraprastha Gas: Like its counterparts, Indraprastha Gas has been affected by the government's decision to reduce its APM gas supply. This change is expected to negatively impact the company's profitability as it faces higher input costs.

Adani Total Gas: Adani Total Gas has expressed concern about the reduced gas allocation, which will be replaced by New Well Gas (NWG). Since NWG is priced higher than APM gas, this shift will likely harm the company's profit margins. Adani Total Gas has confirmed it is exploring ways to mitigate the impact of this policy change.

Summary

The government's decision to reduce APM gas allocation to CGD companies, including Mahanagar Gas, Indraprastha Gas, and Adani Total Gas, has negatively impacted their stock prices. This move comes in response to diminishing domestic gas production and raises the costs of input for these companies.

Financial Impact:

• Revenue: The reduced allocation of APM gas is expected to negatively affect the companies' revenue streams, given their reliance on cheaper gas for operational costs.
• EBITDA & EBITDA Margins: The increase in gas costs due to reliance on higher-priced sources like New Well Gas will likely erode margins and EBITDA.
• Net Profits: With the higher input costs and lower margins, profitability is expected to be adversely impacted.

The overall outlook for the CGD sector appears challenging as companies navigate the complexities of rising gas prices and a shifting allocation landscape.