IGL and MGL Shares Drop 20%: Is APM Gas Policy to Blame?

IGL Share price: Not a good start to the week for domestic oil companies. On Monday, major gas stocks took a sharp hit on the bourses after the government announced a 20 per cent cut in APM (Administered Price Mechanism) gas allocation. APM is a system used by the government to control the price levels of essential commodities like petroleum and gas in India.

Shares of Indraprastha gas Ltd. declined by over 20 per cent and concluded the day at Rs 325.30 on the National Stock Exchange. Mahanagar gas Ltd. and Gujarat gas Ltd. followed suit and went down by nearly 14 per cent and 7 per cent respectively.

Broader sectoral index, Nifty oil and gas plummeted by 1.6 per cent or 173 points on Monday.

The recent cut in allocation has raised red flags for CGDs (city gas distributors), as it could negatively affect their profitability and margins. Some also believe that this cut might result in increased CNG price levels.

Price Hike on the horizon?

Many expected CGDs to raise CNG prices last month, to maintain their profit margins after the government slashed gas allocation. However, the companies didn't increase the price levels which in turn impacted their profit margins and thus projected earnings for FY26.

And if CDGs take a similar step now, there is a chance that sales figures might falter, further adding to the margin pressures. "A further additional price hike of Rs 2.5-2.8/kg could be required to maintain margins assuming no reduction in costs from some other source. We believe, a price hike of Rs 8–9/kg by CGDs (in CNG segment) at one go would be difficult, with potentially impacting volume growth (if taken) or margin pressure (if only partly passed on)," ICICI Securities said in its report.

As for upstream companies like ONGC and Oil India, the price cut in allocations can actually work in their favor. This is primarily because more of the gas will be priced based on new gas wells that follow a different pricing formula linked to Indian crude oil prices. This will likely boost the price they receive for the commodity, improving their revenue and earnings.