Mahanagar, Indraprastha Gas Shares Decline After Changes In Domestic Gas Allocation

Shares of city gas distribution companies Mahanagar Gas Ltd. and Indraprastha Gas Ltd. fell on Wednesday, after the government reduced their allocation of cheaper domestically produced Administrative Price Mechanism natural gas.

While the shares of Mahanagar Gas fell over 6% to Rs 1,230.50, Indraprastha Gas was down nearly 4% to Rs 172. Other gas companies like GAIL (India) Ltd., Gujarat State Petronet Ltd. and Gujarat Gas Ltd. saw their stocks fall over 1%.

From April 16, the allocation for Mahanagar Gas has been cut by 18% in comparison to the previous fortnight APM allocation, the company said in an exchange filing on Tuesday.

The reduced APM gas volume will be replaced with New Well/Well Intervention gas. This switch will, however, come with a cost implication, as the NWG is priced higher than the APM gas, the company said.

In the case of Indraprastha Gas, the allocation has been reduced by 20%. However, it has been allocated New Well Gas equal to approximately 125% of the shortfall. The company further added that the NWG is priced at 12% of Indian Crude Basket.

The move is in line with policy guidelines issued by the Ministry of Petroleum and Natural Gas. According to this policy, the APM gas allocation to the city gas distribution companies is to be used specifically for priority sectors like domestic piped natural gas and compressed natural gas used in transport. The allocation is limited to the quantity available and supplied through GAIL.

The administered price mechanism, or APM, governs the pricing of natural gas from legacy domestic fields operated by state-owned producers. This gas is allocated at a regulated low price to city gas distributors, who use it primarily to supply compressed natural gas and piped natural gas to households and vehicles.

Any reduction in APM volumes increases procurement costs for these companies, putting pressure on margins if higher retail prices are not passed on to consumers.

The shift to New Well Gas partly cushions the impact as companies are not forced to rely on costlier spot LNG as seen in earlier cuts, BofA said in a note. A CNG price increase of Rs 0.7 to 0.9 per kilogram would be sufficient to offset the margin impact from the APM reduction, according to the brokerage.