Share prices of the city gas distribution companies fall nearly 20% on Monday market session After Central Government cuts the administered price mechanism (APM).
As Lower gas production from older fields and to divert gas to OPal Petchem plant of ONGC, there is supply cuts. while volumes under the priority segment have been reducing constantly over the past one and half year, the extent of reduction at one go is negative surprise.
City Gas distribution Companies: Reduction in Domestic Gas Allocation :
| Companies | First Cut | Second Cut | Total Reduction |
|---|---|---|---|
| Indraprastha Gas | 21 | 20 | 41 |
| Mahanagar Gas | 20 | 18 | 38 |
| Adani Total Gas | 16 | 13 | 29 |
The share price of indraprastha gas limited (IGL)Already corrected to the price of around cmp 400 and today it fell nearly 20% again.
The government cut the APM gas allocation to these city gas distribution companies by another 20% after reducing it by around 14% in the previous month. The total APM gas availability for these companies now stands at 40-45%. Reacting this shares of Indraprastha Gas dived as much as 20%, Mahanagar Gas Ltd were down 18%, Gujarat Gas down 9%, while those of Adani Total Gas fell 5% on the National Stock Exchange of India today’s market session.
The price of APM gas is set by the Petroleum Planning and Analysis Cell (PPAC) which comes under the Ministry of Petroleum and Natural Gas. that is sold at a government-regulated price, which is lower than market rates.
Cut in the APM gas allocation means that city gas distribution companies will now have to depend on a combination of other higher-priced gas sources, such as spot LNG, High-Pressure High-Temperature gas, and gas from new fields.
This direct effects the cost of raw materials for these companies, thereby hitting their margins. Analysts believe that a cut in the APM gas allocation would affect the earnings of city gas distribution companies in the coming quarters unless significant price hikes are taken to transfer the burden to end-consumers.
According to various estimates, the recent APM gas allocation cuts could require price hikes of over ₹7 per kg to maintain margins. However, upcoming state elections may restrict these companies from making such a move.
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