Your CNG Prices Could Rise By Rs 6-8 Per Kg
Prices of compressed natural gas, especially in Mumbai and Delhi, could be hiked by Rs 6-8 per kg soon.
The key driver of this likely price hike is the reduction in domestic gas allocation for companies like Mahanagar Gas and Indraprastha Gas whose main operating regions include Mumbai and Delhi.
Reduced allocation of domestic gas has a negative impact on the operating costs of the companies.
CNG Price Hike: Why And By How much?
The reduction of domestic gas allocation has a negative impact on the margins of Indraprastha Gas and Mahanagar Gas. After the first cut of deallocation from ONGC Ltd. was announced in mid-October 2024, Emkay Research stated, that the companies would have to take a Rs 3-3.5 per kg hike in the retail selling prices of CNG.
Emkay Research now states that companies like Indraprastha Gas and Mahanagar Gas would require at least a Rs 4.5-4.8 per kg price hike in order to maintain margins. The brokerage notes that Indraprastha Gas would require a Rs 6.3 per kg price hike in its entire CNG segment, while Mahanagar Gas would require a Rs 6.4 per kg price hike.
Jefferies suggests that Indraprastha Gas, Mahanagar Gas and Gujarat Gas would have to take a 10% increase in their CNG and PNG prices in order to maintain margins at a level before the domestic allocation reductions were announced. Systematix believes that companies will need a Rs 6-8 per kg hike in CNG prices, in order to maintain margins.
When Will The Price Hikes Happen?
Margins of city gas companies are expected to see near-term pressure due to one key overhang which is timing of required price hike. IIFL Securities and Jefferies do not expect a price hike in the CNG segment soon due to Maharashtra state elections as well as in Delhi.
In its Q2FY25 concall, which was just after the first reduction in domestic gas allocation was announced, Indraprastha Gas' management stated that the company is seriously contemplating a price hike, but has not taken it so far due to the festive season. The hike is likely to happen after the festive season, the company stated in its earnings conference call.
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