Global brokerage firm Jefferies has downgraded city gas players Mahanagar Gas Limited (MGL) and Indraprastha Gas Limited (IGL), citing a significant reduction in the allocation of administered pricing mechanism (APM) gas. MGL has been downgraded to “Underperform” from “Buy,” with the target price slashed to ₹1,130, while IGL has also been downgraded to “Underperform” from “Hold,” with the target price cut to ₹295 from ₹390.
Jefferies highlighted that for the second consecutive month, the government has reduced APM gas allocation to CNG players by 20%, signaling that cheap domestic gas could be fully withdrawn by mid-2025. The brokerage now assumes APM allocation will drop to nearly zero by mid-CY25, potentially leading to a ₹1-2.5 per standard cubic meter (scm) reduction in EBITDA margins for city gas distributors.
Consequently, Jefferies has lowered its FY26 earnings per share (EPS) estimates for MGL, IGL, and Gujarat Gas (GUJGA) by 31%, 27%, and 19%, respectively. It further noted that estimates would be revisited once the quantum and timing of price hikes are clarified.
