IGL, MGL shares plunge up to 15% today. Here’s why

Shares of city gas distribution companies Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) saw significant declines today, dropping by as much as 15% after the government announced plans to reduce priority gas allocations for these firms.
MGL’s stock plummeted 11%, reaching a low of Rs 1,568.30, while IGL experienced a 10% drop, closing at Rs 453.70 on the Bombay Stock Exchange, as of 2:15 PM.
According to new guidelines from the Ministry of Petroleum and Natural Gas, domestically produced Administered Price Mechanism (APM) natural gas will be allocated to city gas distribution (CGD) companies primarily for essential sectors, including Domestic PNG and CNG for transportation. The policy indicates that CGD entities will only receive gas based on the quantities assigned to GAIL (India) Limited for these priority areas.
MGL reported in a stock exchange filing that its allocation for CNG (transport) has been cut by approximately 20%, effective October 16, 2024, compared to the previous quarterly average. This substantial reduction is expected to adversely affect the company’s profitability.
To mitigate the impact of this allocation cut, MGL is exploring alternatives for sourcing gas, including domestically produced High-Pressure High Temperature (HPHT) gas, New Well/Well Intervention gas (NWG) from ONGC, and benchmark-linked long-term gas contracts.
IGL also communicated to investors that it has received notice from GAIL (India) Ltd. regarding a significant reduction in its domestic gas allocation, effective from October 16, 2024. This revised allocation represents about a 21% decrease from previous levels, raising concerns about its profitability moving forward.