Shares of Mahanagar Gas Ltd (MGL) slumped over 5% to ₹1,247 in early trade on Tuesday, after the company revealed a significant reduction in its allocation of low-cost APM (Administered Price Mechanism) gas. The development has raised investor concerns about rising input costs and margin pressure, leading to negative sentiment around the stock.
At 9:30 AM, MGL was trading at ₹1,247, down ₹68.60 or 5.21%, eroding over ₹680 crore in market cap in the session. The company now has a valuation of approximately ₹1.25 lakh crore.
SEBI filing triggers alarm
On April 16, MGL disclosed that its APM gas allocation has been reduced by around 18%, effective immediately, in line with the guidelines issued by the Ministry of Petroleum and Natural Gas. This decision affects the gas availability for its core CNG and domestic PNG segments, forcing MGL to source costlier new well gas, which comes at a 30% premium to APM gas.
Jefferies flags profitability risks
In a research note, brokerage firm Jefferies maintained an ‘Underperform’ rating on MGL and slashed its target price to ₹1,220, citing cost pressure concerns. The brokerage warned that while CNG and PNG prices have been hiked recently, MGL may struggle to fully pass on the increased feedstock costs to consumers.
- The 18% cut in APM gas translates to a 26% drop in availability for CNG volumes.
- Jefferies estimates flat EPS growth for MGL over FY25–27, highlighting a bleak margin outlook.
- “Unless retail prices are raised further, margin compression is likely to persist, capping near-term upside,” the report added.
CLSA: Price hikes needed to offset pressure
CLSA, in a separate note, said MGL and IGL both face a reduction of 18–20% in domestic gas allocation, and will now need to rely more on new well gas priced around 20% higher than APM. To offset this cost, CLSA estimates a hike of ₹0.6 per kg in CNG prices is necessary.
CLSA also noted that the gas allocation changes will have a broader impact across the CGD sector, with cost structures undergoing a reset unless supported by regulatory intervention or aggressive price hikes.
Market implications
With input costs climbing and retail pricing power limited, analysts believe the company’s profit margins will remain under pressure, despite stable volume growth. Investor sentiment is likely to remain cautious in the near term, especially with leading brokerages turning bearish.
Disclaimer: The information provided is for informational purposes only and should not be considered financial or investment advice. Stock market investments are subject to market risks. Always conduct your own research or consult a financial advisor before making investment decisions. Author or Business Upturn is not liable for any losses arising from the use of this information.
