Mahanagar Gas (MGL) shares rose 4% in intraday trade on the NSE on Friday, after the city gas distributor announced a ₹2 per kg price hike for compressed natural gas (CNG) in Mumbai and nearby areas, effective today. The price adjustment, aimed at offsetting higher costs, raises the delivered CNG price to ₹77 per kg, including taxes, the company said in a statement to exchanges.
Shares of MGL opened higher today at ₹1,152.60, up from yesterday’s close of ₹1,125.35. After a modest 0.6% rise in the previous session, the stock gained 4.35% today, reaching an intraday high of ₹1,174.30. On a year-to-date basis, shares remain down by 4%.
But what does this mean for the city gas distributor and what lies ahead for the CNG market?
This is the second time in a year when the distributor raised its prices. The first price hike was in July of ₹1.5 per kg, driven by reduced domestic gas allocations to city gas companies. The latest hike marks a 2.6% increase.
A starking point to note here is the announcement comes days after the Maharashtra and Jharkhan elections. Earlier it was anticipated that the price hikes would come post the festive season however, that did not happen due to elections.
Yet, analysts estimate that city gas distributors may need to hike prices by 8-10% to fully absorb mounting costs and overcome the problem of shrinking margins.
City gas distribution companies, including MGL, face mounting pressure as domestic gas allocations dwindle, driving up costs and forcing price hikes. On November 16, the government reduced supplies of low-priced natural gas from legacy fields by up to 20%, following a similar cut in October. As a result, companies are now left increasingly reliant on costlier alternatives such as spot liquefied natural gas (LNG) and high-pressure, high-temperature (HPHT) gas which will have a significant impact on these companies' profitability.
The ongoing reduction in Administered Price Mechanism (APM) gas supply has seen allocations drop from 154% of demand in FY21 to just 30-35% today. The rapid deallocation raises concerns about the sector’s viability. The situation highlights the challenges of balancing profitability with competitive pricing in the face of declining government support for affordable domestic gas. Gradual allocation cuts could have allowed smoother price adjustments, but the abrupt reductions have strained margins and disrupted market stability.
This is why it is anticipated that other companies will follow the price hike measure taken by Mahanagar Gas with the impact of increased CNG costs due reduction of APM gas allocation being passed onto the consumers. While shares of MGL and IGL have plunged over 40% since October, hitting multi-year lows, MGL gains today on the back of price hikes signal positive times ahead for these companies on the stock market.
