Indraprastha, Mahanagar Gas Share Prices Fall After Jefferies Downgrade, Target Price Cut

Share prices of major city gas distribution companies Indraprastha Gas Ltd. and Mahanagar Gas Ltd. fell on Monday after Jefferies downgraded both stocks and slashed their target prices after the reduction in domestic gas allocation.

IGL’s stock fell by almost 10% on Monday morning, while MGL’s stock also plummeted 15%

Jefferies downgraded MGL to 'underperform' from its previous 'buy' rating and lowered its target price to Rs 1,130 per share, implying a potential downside of 14%. Similarly, IGL was downgraded to 'underperform' from 'hold', with its target price cut to Rs 295 apiece, reflecting 26% downside.

The downgrades come after the companies reported a second consecutive reduction in their domestic gas allocation from GAIL India Ltd., which is expected to significantly impact their profitability in the coming years. According to Jefferies, the gas distribution firms may face a complete nil allocation of domestic gas by mid-2025, which could put additional pressure on their margins.

Soni Patnaik Of JM Financial Services said IGL, MGL data show 5-10% correction and that gas stocks have broken several support levels on the charts.

The reduced gas allocation is tied to a cut in the APM (Administered Price Mechanism) gas allocation, which provides gas to city gas distribution companies at a subsidised price of $6.5 per million metric British thermal unit. With reduced access to this cheaper gas, these companies will likely be forced to source gas at higher market prices, increasing their operating costs and reducing their earnings before interest, taxes, depreciation, and amortisation margins.

The reductions in gas allocation were first flagged in October 2024, when Oil and Natural Gas Corp. announced a similar cut of 16-20% in domestic gas supply to the city gas sector. This second cut—impacting IGL, MGL, and Adani Total Gas by 13-20%—exacerbates concerns about the sustainability of the city gas distribution model.

IGL and MGL, both leading players in the Indian city gas market, rely heavily on affordable domestic gas for their CNG sales and PNG distribution to residential and industrial consumers.

Shares of Indraprastha Gas fell as much as 9.99% to Rs 365 apiece. They were trading at the same level at 09:27 a.m., compared to a 0.21% decline in the NSE Nifty 50.

The stock has fallen 5.18% in the last 12 months. Total traded volume so far in the day stood at 115 times its 30-day average. The relative strength index was at 19.45.

Out of 36 analysts tracking the company, 16 maintain a 'buy' rating, nine recommend a 'hold' and 11 suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 24.3%.

The scrip fell as much as 15% to Rs 1,115.75 apiece as of 09:33 a.m. This compares to a 0.21% decline in the NSE Nifty 50.

It has risen 7.74% in the last 12 months. Total traded volume so far in the day stood at 6.5 times its 30-day average. The relative strength index was at 16.

Out of 33 analysts tracking the company, 15 maintain a 'buy' rating, seven recommend a 'hold' and 11 suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 39%.

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