IGL and MGL Shares Slipped ~10% After Cut in APM Gas Allocation

Shares of City Gas Distribution (CGD) companies IGL and MGL plummeted over 10% in morning trading on November 18, 2024, after the Indian government announced a second consecutive reduction in the Administered Price Mechanism (APM) gas allocation. The 20% cut for November follows a similar reduction implemented in October, further heightening concerns about the financial impact on CGD companies.

Impact of APM Allocation Cuts on CGD Companies

Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) reported significant additional cuts to their gas allocations. IGL saw a 20% reduction, while MGL’s allocation was slashed by 18%. Adani Total Gas indicated a more moderate 13% cut.

These cuts come on top of the ~20% reduction announced earlier in October, increasing concerns for CGD players, which rely on these gas supplies for their operations. The revised gas allocations, which are approximately 20% lower than previous levels, are expected to significantly impact the profitability of these companies.

Profitability Concerns: IGL Responds to Allocation Reduction

Indraprastha Gas Limited (IGL) stated that the reduced domestic gas supply would negatively affect its profitability. The company confirmed that the revised allocation was “approximately 20% lesser” than previously allocated quantities, leading to an adverse financial impact.

IGL added that it is exploring all available options to mitigate the impact of the reduced gas supply, including discussions for a potential increase in the price of gas, which could be passed on to consumers. However, this price hike could face regulatory hurdles and may not fully offset the allocation cut.

Repeated Cuts Spark Continued Investor Pessimism

The decision to cut APM allocations for CGD companies follows a similar move in October, which triggered heavy selling pressure in the shares of IGL and MGL. The shares of both companies saw sharp declines amid growing concerns over their profitability.

This latest reduction has reignited negative sentiment in the market, with analysts warning that the cuts will continue to pressure the financials of CGD companies. Following the downgrades in the previous month and the ongoing concerns about profitability, market sentiment remains bearish, and the negative outlook for CGD stocks is expected to persist.

On November 18 2024, IGL share price opened at ₹365.40  and touched the day low of ₹324.80, reflecting a fall of 19.05% from the previous close at 10:25 AM while MGL share price dragged to the day low of ₹1,075.00 with a fall of 12.37%.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.