IGL, MGL, Gujarat Gas record sharp gains, rise up to 24% in one month despite cuts in APM allocation

fundamentals are unsupportive as markets are ignoring an imminent profit plunge," added the brokerage. Currently, natural gas does not fall under the GST framework. Instead, gas sees a slew of taxes: state VAT, central sales tax, and central excise duty. The gas value chain has many input and output taxes, especially as a result of the difference in taxation between states. The inclusion of gas in GST ambit was not on the agenda of the 55th GST Council meet.

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City gas distribution (CGD) companies surged in trade on December 24, rising up to four percent in trade and extending their gains over the past month. Indraprastha Gas Ltd, Mahanagar Gas Ltd and Gujarat Gas Ltd saw a sharp uptick in the morning deals.

The gains come as reports just the Ministry of Petroleum and Natural Gas submitted a proposal to reduce central excise duty on CNG. The proposal seeks excise duty cut on CNG from 14 percent to 7 percent.

At 11.30 am, CGD stocks trimmed some gains. IGL shares were trading at Rs 400.5, up 2.7 percent. Gujarat Gas shares were up 2.1 percent at Rs 509.15, while MGL's stock price hovered near the Rs 1,260-mark, up 2.8 percent.

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Shares of CGDs have been buzzing over the past two months. In November, the central government cut the the Administered Price Mechanism (APM) allocation to CGD players by 20 percent for the second month in a row.

A reduced allocation in the APM means that the Centre has cut the supply of low-priced natural gas from old fields to city gas retailers. As a result, the CGDs will have to look for alternative options to bridge the gap in the input gas, such as New Well Gas or spot LNG, which are more expensive.

Following the news, the stocks of these firms plunged sharply, falling over 40 percent from their 52-week highs. However, the counters have staged a smart rebound on the bourses over the past month. IGL shares have risen 24 percent during the time period, while MGL and Gujarat Gas have gained 6 percent and 10 percent, respectively.

According to Nuvama Institutional Equities, the markets are ignoring an imminent profit plunge while pricing in an implementation of GST on natural gas, causing the shares to skyrocket. "We argue fundamentals are unsupportive as markets are ignoring an imminent profit plunge," added the brokerage.

Currently, natural gas does not fall under the GST framework. Instead, gas sees a slew of taxes: state VAT, central sales tax, and central excise duty. The gas value chain has many input and output taxes, especially as a result of the difference in taxation between states.

The inclusion of gas in GST ambit was not on the agenda of the 55th GST Council meet, which was held on December 21, 2024. Regardless, the shares of CGDs have continued to gain.

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