Indraprastha Gas and Mahanagar Gas face perils of policy controls
Subscribe to enjoy similar stories. City gas distributors Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) have suffered two consecutive blows in a month. The government has reduced the supply of cheaper natural gas by 20% for IGL and 18% for MGL, effective 16 November.
This follows a previous reduction of 21% for IGL and 20% for MGL, effective 16 October. Cumulatively, the cut is around 36% each from the original allocation made a month ago, as the production of domestically supplied gas under the administrative price mechanism (APM) has declined. Consequently, MGL and IGL stocks have lost steam, falling 14% and 20%, respectively over the last two trading sessions.
The price and source from which these companies meet the shortfall are crucial now. For perspective, APM gas is priced at $6.5 per mmbtu and non-APM domestic gas at $8-9 per mmbtu. Spot LNG is even higher at $14 per mmbtu.
In the September quarter (Q2FY25), while IGL’s gas sourcing consisted of 50% APM gas, for MGL it was 71% given the former's larger sales volume. To maintain FY25 Ebitda margin guidance of ₹6- ₹7 per standard cubic meter (scm), IGL will have to raise the price of compressed natural gas (CNG). The management had indicated an increase of ₹5-6 per kilogram after the first reduction of 21% in October.
This should rise further after the second cut in APM gas supply, assuming the usage of regasified LNG bought from short-term tendering. MGL’s guided range of Ebitda per scm of ₹10-12 for FY25 is also at risk if it doesn’t increase prices or find cheap natural gas supply. IGL’s relatively lower base margins than MGL means it needs to hike prices more desperately than MGL.
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