| Company | Value | Change | %Change |
|---|
The new CNG price is ₹78 per kg, while piped gas remains unchanged at ₹48 per unit.
Global brokerage firm Morgan Stanley noted that city gas companies have been gradually increasing CNG prices in Tier 1/2 cities like Jhansi, Udaipur, and Mumbai since November. It expects another 5-6% price hike to maintain a medium-term return on capital employed (RoCE) of 14-15%, with 70-80% of gas cost increases passed on to customers.
Why the price hike
– Administered Price Mechanism (APM) gas allocation has been reduced by nearly 40%.
– Companies are sourcing more expensive market-priced natural gas.
Reports also suggested that the Ministry of Petroleum and Natural Gas submitted a proposal to reduce central excise duty on CNG. The proposal seeks excise duty cut on CNG from 14% to 7%.
In November, the Central government had reduced the APM allocation to CGD players by 20% for the second month in a row.
A reduced allocation in the APM means that the Centre has cut the supply of low-priced natural gas from old fields to city gas retailers. As a result, the CGDs will have to look for alternative options to bridge the gap in the input gas, such as New Well Gas or spot LNG, which are more expensive.
According to a recent note from brokerage firm Nuvama, the market is pricing in an elusive GST rollout for natural gas, but are ignoring an imminent plunge in the net profit of these companies.
Nuvama believes that in case there is a GST on CNG rollout at 12%, there is an upside potential between 9% to 11% to the financial year 2026 Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of these city gas companies.
While administrative impasse is proving to be a challenge, as per Nuvama, who also added that the anti-profiteering laws would mean that any benefit must be passed on.
For the December quarter, Nuvama expects the EBITDA margin per standard cubic meter (scm) of these City Gas companies to fall between 17% and 44% sequentially as a realisation uptick of 1% falls short of the average gas cost hike betwen 4% to 11%, according to Nuvama.
Nuvama has maintained its ‘Reduce’ rating on IGL and MGL, while it has a ‘Hold’ recommendation on Gujarat Gas.
Shares of IGL, MGL and Gujarat Gas have faced a steep correction in their stock price after the twin de-allocation seen in the APM gas to these companies.
MGL and IGL shares were trading almost flat on Friday.
