IGL vs MGL: Which stock to buy amid tax cut buzz in Gujarat? Analysts weigh

City gas distributors Indraprastha Gas and Mahanagar Gas may see a major earnings lift as Gujarat slashes VAT on gas to 2%. Analysts expect improved margins, profitability, and strong stock upside

Dalal Street analysts foresee windfall gains for city gas distributors -- Indraprastha Gas (IGL) and Mahanagar Gas (MGL) – if reports of a reduction in value added tax (VAT) on gas sourced from Gujarat turns out to be true.

 

According to reports, the Gujarat state government has replaced a 15-per cent VAT, levied on CGD companies, with a 2-per cent Central Sales Tax (CST), implying 13 per cent savings on cost of gas sourced from the state.

 

Notably, the tax was levied on IGL and MGL as these CGDs purchased both, APM (Administered Price Mechanism) gas and NWG (New Well Gas), from Gujarat and sold outside the state.

 

Gujarat Gas (GGL), that sells its gas products within the state, was eligible for a 100 per cent refund on the tax levied.

 

With the tax rate being lowered effective October 1, 2025, analysts expect IGL and MGL to see a jump in their revenue and margins.

 

On the bourses, IGL shares slipped 1.1 per cent on the BSE in the intraday trade as investors booked profit after a 5.7-per cent rally seen on the counter on Tuesday.

 

Similarly, MGL shares were down little over 1.5 per cent after a 2.3 per cent rise yesterday.

 

By comparison, the benchmark BSE Sensex index was down 0.2 per cent at 11:15 AM.  READ STOCK MARKET UPDATES LIVE 

IGL, MGL to benefit from lower VAT

As of June 30, 2025, Gujarat was the biggest source of APM for IGL (45 per cent of total volume), and of NWG for MGL (12 per cent of total volume).

 

Given this, analysts at Nomura pencil a ₹1.36 per standard cubic meter (scm) unit Ebitda impact with 22 per cent absolute Ebitda gain for IGL, assuming the company retains the entire tax cut benefit. Ebitda is earnings before interest, tax, depreciation, and amortisation.

 

MGL, it added, may see a ₹0.36/scm unit Ebitda impact and 4 per cent gain. It has a ‘Buy’ rating on the stock and a share price target of ₹1,580 due to its attractive valuation and leading volume growth and margin profile.

 

It has a ‘Neutral’ rating on IGL with a share price target of ₹225.

 

Those at Motilal Oswal Financial Services, meanwhile, estimate an ₹0.9/scm Ebitda margin gain for IGL and an ₹0.3/scm margin gain for MGL. Gujarat Gas, it said, may not see any benefit.

 

“We, currently, build in ₹5.9/scm Ebitda margin for IGL in FY26, ₹6.5/scm each in FY27 and FY28. Hence, if this tax change materialises, it would lead to 8 per cent and 15 per cent each increase in our FY26, FY27 and FY28 PAT estimates,” it said.  ALSO READ | Anant Raj, Oberoi Realty: Why are real estate stocks falling today?

Sectoral tailwinds aid outlook

Apart from the likely tax reduction boost, analysts believe lower crude oil prices and changes in zonal tariff reforms would put CGDs in a bright spot.

 

The companies, they believe, are set for lower input costs driven by softer crude price outlook, coupled with a lower pricing slope for natural gas amid the upcoming LNG oversupply.

 

According to MOFSL, brent crude oil prices averaged $69/barrel in the second quarter of the current financial year (Q2FY26). The price may average around $65 per barrel in FY26 and $60 per bbl in FY27.

 

“We estimate that every $5/bbl decline in Brent prices reduces the landed cost of natural gas by ₹2.5/scm. Further, channel checks suggest new long-term gas contracts are already being signed for a 1.0-1.3 per cent lower slope given the expected surge in LNG supply in H2FY26 and beyond. Both these tailwinds make us bullish on the sector,” MOFSL said.

 

The brokerage has ‘Buy’ ratings on IGL (target: ₹250) and MGL (target: ₹1,700).