CGD stocks: IGL hits 52-week low, MGL tanks 9% on supply disruption fears

Shares of city gas distribution (CGD) companies were under pressure on Wednesday, with some dipping as much as 9 per cent on the BSE on reports that Qatar has declared force majeure on deliveries, following a halt in production in the wake of an Iranian drone strike. The strike has reportedly led to a disruption in supplies to Indian industry by up to 40 per cent. 

 

Qatar is India's largest supplier of imported natural gas. Among individual stocks, Mahanagar Gas Limited (MGL) tanked about 10 per cent intraday to ₹1,089 on the BSE, before paring loss to end at ₹1,101, down 8.78 per cent. Shares of Indraprastha Gas (IGL) hit a 52-week low of ₹157.30, falling 6 per cent in intraday trade, before recovering slightly to close at ₹157.41. 

IGL and MGL are leading and premier CGD companies in India. IGL's presence has expanded to 12 Geographical Areas (GAs) across 32 districts in four states. MGL, meanwhile, is present across six GAs. These include three GAs originally allocated to MGL of GA-1 (Greater Mumbai area), GA-2 (includes Thane urban and surrounding areas) and GA-3 (Raigad district). Its growth is primarily driven by the compressed natural gas (CNG) business, which currently contributes 70-75 per cent of its revenues. The company also supplies piped natural gas (PNG) to the industrial, commercial, and residential segments. MGL sources most of its gas requirements from GAIL, while a small part is bought from the spot market.  

India's gas sourcing is primarily from the Middle East, the US, and Australia. Qatar supplies about 40 per cent of the nearly 27 million tonnes of liquefied natural gas (LNG) that India imports annually to meet demand across sectors, ranging from power generation and fertiliser production to CNG distribution and piped cooking gas networks.

 

The ability of CGDs to pass on the impact of rising natural gas costs to consumers and maintain profitability will be a key monitorable, according to analysts. "As the segment is served by imported LNG, competitive sourcing remains a key driving factor for the segment's profitability. Thus, the profitability of CGD entities remains exposed to variations in alternative fuel prices and competitive sourcing of natural gas," according to rating agency ICRA. 

 

Meanwhile, the Islamic Revolutionary Guard Corps (IRGC) has announced the closure of the Strait of Hormuz (SoH), warning that any vessel attempting to transit the waterway would be targeted. This is a material global risk event. Approximately 20 million barrels per day (mb/d) of crude oil and ₹86 million tonnes per annum (mtpa) of LNG pass through the SoH, representing 27 per cent of global oil trade and 20 per cent of global LNG trade. 

 

While a prolonged shutdown appears unlikely, even a disruption lasting a few weeks could cause significant market dislocation. Early signs of stress are already visible. Qatar, one of the world's largest LNG exporters, has reportedly shut its LNG plants, exacerbating concerns over supply continuity, said Sumit Pokharna, VP fundamental research, Kotak Securities. CGD companies may experience higher input gas prices, potential supply cuts and margin pressure amid regulatory and competitive constraints, according to Kotak Securities.

 

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