Brokerage firm CLSA has flagged critical changes in the domestic gas allocation for city gas distributors, highlighting implications for Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL), and Oil and Natural Gas Corporation (ONGC). As per CLSA, IGL and MGL have witnessed an 18–20% reduction in their allocation of cheap domestic gas used to meet Compressed Natural Gas (CNG) demand.
To compensate for the cut, these companies will now rely on new well gas, which is priced approximately 20% higher than APM (Administered Price Mechanism) gas. CLSA estimates that IGL and MGL would need to raise CNG prices by around ₹0.6 per kg to fully offset the impact of the higher input costs.
This shift, while posing a margin challenge for gas distributors, turns out to be structurally beneficial for ONGC. CLSA notes that ONGC will now see the share of its higher-priced new well gas increase from 11% to 17% of its standalone gas output, improving its realisation metrics.
While IGL and MGL might resort to calibrated price hikes or absorb some of the cost pressures to maintain volume growth, the brokerage indicates that the change in gas classification should positively impact ONGC’s earnings trajectory in the near term.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
