Mahanagar Gas shares rise 4% on higher CNG prices

Shares of Mahanagar Gas (MGL) rose 4% in intraday trade on the NSE on Friday after the city-based gas distributor announced a ₹2 per kg hike in compressed natural gas (CNG) prices in Mumbai and nearby areas, effective from today day. The price adjustment, aimed at offsetting higher costs, raises the price of LNG supplied to ₹77 per kg, including taxes, the company said in a statement to exchanges.

MGL shares opened higher at Rs 1,152.60 today compared to yesterday’s close of Rs 1,125.35. After rising modestly by 0.6% in the previous session, shares were up 4.35% today to hit an intraday high of ₹1,174.30. The stock is still down 4% year to date.

This is the distributor’s second price increase this year, following a ₹1.5 per kg rise in July, driven by a reduction in domestic gas distribution to city gas companies. The latest hike represents an increase of 2.6%, although it is estimated that city gas distributors may have to raise prices by 8-10% to fully cover installation costs. The move comes as state-owned companies such as MGL and Indraprastha Gas (IGL) are facing declining profits.

City gas distribution companies, including MGL, are facing increasing pressure as domestic gas supplies dwindle, driving up costs and rising prices. On November 16, the government cut supplies of cheap natural gas from aging fields by nearly 20%, following a similar cut in October. As a result, companies are now increasingly relying on higher-cost alternatives such as liquefied natural gas (LNG) and high pressure high temperature (HPHT) gas, which will have a significant impact on the profitability of these companies.

The ongoing reduction in gas supplies under the Administered Pricing Mechanism (APM) has seen allocations fall from 154% of demand in FY21 to just 30-35% today. The rapid decline in distribution raises concerns about the viability of the sector. The situation highlights the challenges of balancing profitability and competitive prices in the face of declining government support for affordable domestic gas. A gradual reduction in distribution could allow for a smoother price adjustment, but the sharp reduction reduced profitability and disrupted market stability.

MGL and IGL shares have fallen more than 40% since October, hitting multi-year lows.