Indraprastha Gas, Mahanagar Gas slump up to 20% after APM gas allocation reduced for second straight month

Shares of Indraprastha Gas (IGL) and Mahanagar Gas (MGL) slumped in Monday's trade (November 18) after the administered gas pricing (APM) gas allocation has been reduced to these companies for the second consecutive month. 

As per Zee Business research inputs, GAIL made cuts of up to 13-20 per cent, the cuts came into effect from November 16. ONGC had cut APM gas allocation by 20 per cent on October 16.

Company                    % Reduction in APM
IGL                                                 20%
MGL                                               18%
Adani Total gas                            13%

As per reports, as the production has been faling amid a natural decline being in trend for some time now, the supply cut to city gas distributors is on the decline.

IGL, MGL shares nosedive

Amid the development, shares of IGL have been hit hard by up to 20 per cent to the day's low price of Rs 326.7 per share. Also, on the sidelines, MGL and Adani Total Gas were down 13 per cent and 3 per cent, respectively.

IGL stock amid the sharp slump hit its 52-week low price and last traded nearly 19 per cent lower. 

The move is detrimental as may negatively impact the profitability of companies in the space.

Brokerages view on reduced gas allocation

Domestic brokerage held that these companies may be allocated a higher supply from fields with gas prices pegged at between $9-10 per mmbtu with APM cost at $6.5 per mmbtu.

Jefferies meanwhile held that soon the supply of domesti gas will be completely done away with.

Global brokerage JP Morgan, meanwhile, said that companies in the space would need to find alternative at a higher costs that would eventually have a bearing on the companies margins. In view of the situation, the brokerage has slashed IGL's PAT estimate for FY25-26 by 11 per cent and for MGL by 25 per cent.

Alternately, Citi believes that gas prices may see an increase by over Rs 7 per kg due to lower allocation.

Brokerage targets on MGL, IGL

Jefferies on MGL
Downgrade to Underperform from Buy, Target cut to 1130 from 1740
 
JP Morgan on MGL
Downgrade to Neutral from overweight, target cut to 1300 from 2000
 
JP Mogan on IGL
Downgrade to Underweight from Neutral, Target cut to 343 from 520
 
Jefferies on IGL
Downgrade to Underperform fron hold, Target cut to 295 from 390