Monday blues for city gas distributor companies. Shares of CGD companies slumped after the government cut the Administered Price Mechanism gas allocation by 20% for the second month in a row. The stock of Indraprastha Gas tanked 20% to Rs 324.40, closing the session near its fresh 52-week low of Rs 323.10. The stock of Mahanagar Gas slipped 18% to an intra-day low of Rs 1,075.25, closing the day 13.85% lower at Rs 1,130.80.
“While the structural decline in APM allocation for the CGD sector is inevitable, the significant 35% cut in the last one month with no proper policy communication is a negative,” said InCred Equities in a research report.
InCred Equities further said that IGL and MGL may see a bigger hit if the price is not hiked. “…we estimate a 46%/25% hit on IGL/MGL’s EBITDA/scm vs Q2 run-rate which is Rs3.5/8 and against the latest guidance of Rs6-7/10-12, and our earlier estimate of Rs6.7-6.9/10.5-10.8,” said the report.
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Intra-day, shares of Adani Total Gas fell 4.6% to Rs 652.15 and that of GAIL 2.1% to Rs 184.89.
“Due to the lack of clarity, we now assume a 14% RoE model for both IGL/MGL (in line with original open access regulations) vs 17%/18% earlier estimated for FY26-27E and cut our SA EPS by 17%/25%. Our price target for IGL/MGL reduces 18%/26% to Rs385/1,400 and we downgrade IGL/MGL to Reduce/Add from Add/Buy earlier,” said InCred Equities.
Another brokerage house, JM Financial Services, cut the EBITDA estimates for IGL and MGL by 7-14% from FY25-27. The brokerage firm slashed the target price for IGL to Rs 350 and Rs 1,100 for MGL, with a ‘Sell’ rating on both stocks.
“We also cut FY25-27 EBITDA for Gujarat Gas by 2-6% and lowered our target price to Rs 600. However, we maintain ‘Buy’ on Gujarat Gas as 60% of its volume comes from the industrial segment, where we expect its pricing power to improve with likely moderation in spot LNG prices in the medium to long term due to significant LNG supply capacity planned globally,” said JM Financial Services.
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