IGL, GAIL drop on fears of tariff cuts

Mumbai: Gas utilities dropped on Tuesday after a directive from a government regulator to cut gas tariffs in New Delhi raised fears that similar actions would follow and hit profit margins in the sector.

The Petroleum and Natural Gas Regulatory Board directed Indraprastha Gas (IGL) to cut tariffs for certain types of gas in New Delhi in a bid to reduce prices for consumers, according to a release on its website.

The action sent shares in IGL down 37% in early morning trade, and dragged down other gas utilities such as GAIL India on fears that other similar directives would be introduced.

“Under this scenario, IGL will struggle to make even normative returns on the capital it has invested in the business, in our view,” said Citigroup analysts in a note to clients on Tuesday.