Shares of five major gas companies plummeted on Monday, reflecting a significant market reaction to the government’s decision to cut domestic gas allocation to city gas distributors (CGDs) by approximately 20% for the second consecutive month. Indraprastha Gas Limited (IGL) bore the brunt with an 18.66% dip, followed by Mahanagar Gas Limited (MGL), which saw a 13.45% decline. Other players like Gujarat Gas, Adani Total Gas, and Gail India also experienced losses of 6.36%, 2.54%, and 1.40%, respectively.

This move comes as the government grapples with limited availability of Administrative Price Mechanism (APM) gas, which is typically prioritized for essential segments such as domestic PNG (piped natural gas) and CNG (compressed natural gas) used in transportation. The reduction in allocation has strained CGDs, impacting both their operations and profitability.

Mahanagar Gas, one of the leading CGD firms, has flagged an 18% reduction in its allocation, effective November 16, 2024, as a significant challenge to its bottom line. Indraprastha Gas, a key player in the sector, reported an even steeper 20% cut, while Adani Total Gas highlighted a 13% reduction. These constraints have raised alarm bells across the industry, with multiple analysts downgrading their ratings on CGD stocks.

To navigate these challenges, companies are exploring alternatives. Mahanagar Gas is actively pursuing new gas sources, including High-Pressure High-Temperature (HPHT) gas and New Well/Well Intervention (NWG) gas from ONGC. Benchmark-linked long-term contracts with suppliers are also being considered to ensure stability. Despite these efforts, the immediate financial pressure from reduced allocations is likely to persist, dampening profitability in the short term.

The CGD industry is intensifying its dialogue with stakeholders to address this issue and seek policy interventions that could mitigate the impact of allocation cuts. However, the uncertainty surrounding future allocations has left investors wary, leading to a sharp sell-off in gas stocks.

This latest development underscores the vulnerability of CGD companies to policy shifts and resource limitations. For now, the industry faces a tough road ahead, with operational adjustments and strategic negotiations taking center stage as it works to navigate the crisis.