Shares of city gas distribution companies Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL) and Adani Total Gas Ltd rose more than 5% on Wednesday, August 19, a move linked to the additional allocation of APM natural gas to the sector.

In an interaction with CNBC-TV18 on Wednesday, Probal Sen of ICICI Securities said the additional APM gas allocation will be beneficial for both IGL and MGL. He anticipates this move to result in a 50% jump in gas production.

APM — or Administered Price Mechanism — gas is domestically produced natural gas allocated by the Indian government at regulated prices that are lower than market-linked alternatives such as imported LNG. City gas distribution companies rely on these domestic allocations to supply compressed natural gas (CNG) to vehicles and piped natural gas (PNG) to households, commercial establishments and industrial users. A higher APM allocation therefore increases the proportion of lower-cost domestic gas available to a distributor.

The allocation is reviewed periodically by the government, and any shortfall has to be bridged with costlier market-priced gas. At the start of the current fiscal year, the share of CNG demand met by APM gas had been reduced to about 75% from about 90%, lifting input costs across the sector; the additional allocation eases that squeeze and underpins the analyst optimism on volumes.

The move also carries weight for the wider sector. City gas networks have expanded to most of the country through successive authorization rounds conducted by the Petroleum and Natural Gas Regulatory Board (PNGRB), and the government has set a target of raising natural gas to 15% of India's primary energy mix by 2030, from around 6% at present, making the availability of competitively priced domestic gas central to the economics of CNG and PNG sales.

Indraprastha Gas operates the city gas distribution network in Delhi and adjoining parts of the National Capital Region, including Noida, Greater Noida, Ghaziabad and Gurugram. Mahanagar Gas serves Mumbai and its surrounding areas. Adani Total Gas is a joint venture between India's Adani Group and France's TotalEnergies and develops city gas distribution networks across a number of Indian cities.

All three companies are listed on India's National Stock Exchange and the BSE. In the near term, market participants will be tracking how the additional allocation is implemented, its effect on reported volumes and margins in coming quarters, and any further revisions to the government's domestic gas allocation priorities.

Source: CNBC-TV18