City Gas Distribution (CGD) companies have defied market concerns by posting a strong set of numbers for the December quarter despite significant headwinds, including a depreciating rupee and a reduction in the allocation of Administered Price Mechanism (APM) gas for the Compressed Natural Gas (CNG) segment, analysts have said.
Key players such as Adani Total Gas Ltd (ATGL), Mahanagar Gas Ltd (MGL), and Indraprastha Gas Ltd (IGL) successfully navigated these challenges, ensuring an uninterrupted supply to consumers while maintaining competitive pricing. This stability helped avert a potential crisis that could have arisen from back-to-back reductions in APM gas supply.
APM gas cuts
The government reduced APM gas allocation for the CNG segment from 67.74 percent to 50.75 percent on October 16 and further to 37 percent on November 16. These cuts raised concerns about gas availability and the profitability of CGD companies, particularly as the rupee weakened and international LNG prices surged. The market reacted negatively, leading to a steep decline in CGD stocks — which declined as much as 45 percent — in the weeks following the first supply cut announcement in October.
Despite these challenges, Q3 results brought relief to investors, analysts said. While profits declined, all three listed CGD players demonstrated healthy volume and revenue growth.
ATGL emerged as the segment leader, reporting a year-on-year volume growth of 15 percent and revenue growth of 12 percent.
Though net profits (PAT) declined across the board due to higher gas sourcing costs, ATGL managed a relatively modest 17 percent drop in PAT, outperforming IGL and MGL, which reported declines of 32 percent and 29 percent, respectively.
ATGL has credited the company's ability to source alternative gas supplies while maintaining CNG affordability for its sustained volume growth.
APM gas allocation is the amount of natural gas that is supplied to city gas distribution (CGD) companies at government regulated prices for uses such as household piped natural gas (PNG) and CNG. If the government reduces the APM gas allocation, GCD companies have to source gas from other more expensive sources.
Market outlook
Analysts say that investor sentiment is expected to improve in the coming months as APM gas allocation for the CNG segment has been revised upward to 51.48 percent effective January 16, 2025.
Analysts anticipate that this increase, coupled with the sector's demonstrated resilience, will provide a much-needed boost to profitability in the upcoming quarters. India’s City Gas Distribution (CGD) market is expected to nearly double from $11.33 billion in 2025 to $20.93 billion by 2030, with a strong annual growth rate of 13.06 percent.
As of March 2023, the CGD network has expanded to 5,665 CNG stations and over 11 million household connections. The government is driving this growth with its ambitious plan to make India a gas-based economy, aiming to increase natural gas's share in the energy mix from 6 percent to 15 percent by 2030.
To support this, the Petroleum and Natural Gas Regulatory Board (PNGRB) has approved 295 CGD projects spread across 27 states and union territories, covering 88 percent of India’s land and 98 percent of its population.
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