Why Mahanagar Gas Share Price is Falling

Mahanagar Gas suffered a decline of 7%, while Indraprastha gas and Gujarat Gas experienced a similar dip in their stock prices.

This underperformance was observed in all the city gas distribution (CGD) stocks on Monday, with Mahanagar Gas being the worst affected.

Mahanagar Gas share price has dropped over 6% in the past month, with most of the losses coming in yesterday's session, when it crashed around 7%.

The stock opened its trading hour on Monday at Rs 995.8 and ended the trade at Rs 921.8.

The sudden decline has left investors surprised, as Mahanagar Gas touched its 52-week high last month on 9 March 2023.

Let's find out what led to the sudden fall in city gas distribution stocks.

Delay in gas price revision

In the recent cabinet decision about pricing of natural gas on a provisional basis from April 2023 to September 2023, the government kept domestic gas prices unchanged at US$ 8.6 per mmBtu (million metric British thermal units).

The ceiling, however, was reduced marginally to US$ 12.1 per mmBtu from US$ 12.5 per mmBtu.

According to reports, the government kept the domestic gas price on hold as it considers recommendations from the Kirit Parikh committee on fair natural gas pricing.

The current pricing formula is based on the trailing 12-month average prices of the global gas benchmarks of the US, Russia, Europe, and Canada.

Once accepted, the recommendation would become retrospectively applicable from 1 April 2023.

The move delayed a much anticipated cut in APM gas price, triggering a negative reaction in this stock.

Last year, the panel, headed by Kirit Parikh, recommended fixing the price of gas produced from old blocks at 10% of the monthly average of the import price of the Indian crude basket, with a floor of US$ 4 per MMBtu and a cap of US$ 6.5 per MMBtu.

The Union Cabinet is yet to approve this recommendation of the panel.

What next?

Mahanagar Gas, in March 2023, acquired Unison Enviro Private. This acquisition would enable the company to expand to newer geographical areas in Maharashtra and Karnataka, providing new avenues for long-term growth.

Going forward, with a material reduction in gas costs via the Kirit Parikh Committee recommendations, both volumes and margins are expected to improve.

It is also set to benefit from a steep drop in spot liquefied natural gas (LNG) rates. The rates have almost halved to US$ 14 per mmBtu due to a milder winter and relatively high inventory levels in Europe. This compares to a recent high of US$ 45 per mmBtu.

With a track record of several years in pioneering and developing CGD without any court mandate, the company also benefits from experience in the gas sector.

The management of the company has guided for a capex of Rs 1-1.5 billion (bn) annually over the next eight years to scale up in various geographical areas, with target volumes of 1.1 million standard cubic meters of gas per day.

How Mahanagar Gas shares have performed recently

Mahanagar Gas shares have declined by more than 6% in a month. Over the past week, the company's shares are trading lower by 4%.

Mahanagar Gas touched its 52-week high of Rs 1,006.7 on 13 March 2023 while it touched a 52-week low of Rs 665 on 20 June 2022.

It is currently trading at a PE (Price to Earnings) multiple of 13.9x, with the industry PE ratio being 17x.

About Mahanagar Gas

Mahanagar Gas Limited (MGL) is one of the largest city gas distributions (CGD) companies in India.

It is a joint venture of GAIL (India) Limited, BG Group (UK), and the Government of Maharashtra. It distributes natural gas through the City Gas Distribution network of pipelines.

It distributes compressed natural gas (CNG) for use in vehicles and piped natural gas (PNG) for domestic household, commercial and industrial use.

The company operates under the business segment of the sale of natural gas.

The company has already made its presence in Thane, Mira-Bhayander and is poised for rapid expansion in areas like Vashi-Navi Mumbai, Belapur, Panvel, and many more places.

For more details, see the MAHANAGAR GAS company fact sheet and quarterly results.

You can also compare Mahanagar Gas with its peers on our website.

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