City gas distribution companies under pressure; MGL, IGL decline up to 5%

PNGRB has said the regulation for allowing competition in CGD areas will be notified in the next one to one and a half months.

Shares of city gas distribution (CGD) companies such as Mahanagar Gas (MGL) and Indraprastha Gas (IGL) were under pressure on Tuesday. The shares slipped up to 5 per cent in the intra-day trade on the BSE on Tuesday after Petroleum and Natural Gas Regulatory Board (PNGRB) said the regulation for allowing competition in CGD areas will be notified in the next one to one and a half months.

The stock of MGL slipped 5 per cent to Rs 1,025, while IGL was down nearly 5 per cent at Rs 421 in intra-day trade on the BSE. At 10:31 am, the two stocks were trading 4 per cent lower, as compared to a 0.06 per cent decline in the S&P BSE Sensex.

“No timeline has been given for allowing new competition in various areas. However, in our opinion, Mumbai and Delhi will be the first two cities where the competition will be allowed, which may have some impact on the growth of Mahanagar Gas and Indraprastha Gas,” ICICI Securities said in a note.

“While MGL continues to expand in existing areas in Mumbai Metropolitan Region (MMR) as well as in Raigadh, the disruption in volumes due to Covid-19-induced lockdown has severely impacted the growth prospects for FY21E with management also cautioning towards a lower capex (from Rs 400-500 crore levels) which will see a deferment in company’s expansion plans,” analysts at Centrum Broking said in Q4FY20 result update.

Additionally, growth beyond FY23-24E is also uncertain, given a lack of new areas in MGL’s portfolio, it adds.

As regards IGL, analysts at Edelweiss Securities note that given IGL is opening 40 new CNG stations per year amid low penetration, it would log healthy growth in existing geographies. 

"IGL is a steady growth story with robust volume growth outlook and high exposure to priority sectors. We estimate an EPS CAGR of 10 per cent over FY20–22. Maintain ‘BUY/SO’ with a target price of Rs 569," the brokerage said in a result review note issued on June 17.