The stocks of city gas distribution (CGD) companies are in the spotlight following the central government’s policy boost announced earlier this week, aimed at increasing domestic piped natural gas (D-PNG) consumption.
Under the scheme, CGDs will receive a one-time additional allocation of 200 standard cubic metres (scm) of gas through the administered price mechanism (APM) for each new customer acquired, over and above the customers added during the base period. CGDs such as Indraprastha Gas Ltd (IGL), Mahanagar Gas Ltd (MGL) and Gujarat Energy Ltd (GEL, formerly Gujarat Gas Ltd) meet part of their natural gas requirements through cheaper APM gas and procure the remainder at market prices.
Since average household consumption is significantly below 200 scm, the additional allocation would allow CGDs to replace some of the more expensive non-APM gas they currently procure from other sources.
Nomura Global Markets Research estimates that, based on FY26 consumption, MGL, IGL and GEL could have annual surpluses of 92 scm, 83 scm and 69 scm, respectively. Emkay Global Financial Services estimates that MGL and IGL could save ₹110 crore and ₹20 crore, respectively, assuming a market gas price of $12 per mmbtu (million British thermal units) and a price of $7 per mmbtu under the APM. That would amount to about 11% and 1.1% of their FY26 pre-tax profits, respectively. However, savings could come down if the CGDs pass on a part of the incentive to new customers, for quicker onboarding.
The six-month scheme, starting 1 September, will run in two phases. Customers added in the June quarter (Q1FY27) will form the base for the first phase, while customers acquired during phase 1 will serve as the base for the second.
However, because the scheme provides only a one-time benefit, CGDs are likely to focus on increasing adoption within their existing connected areas rather than building infrastructure and expanding their coverage. There are 1.74 crore domestic PNG connections across the country, but actual consumers are significantly lower, at 1.1 crore, notes Emkay.
Meanwhile, pure-play CGDs IGL and MGL had a tough June quarter, with Ebitda falling 42% and 12% year-on-year to ₹510 crore and ₹390 crore, respectively. GEL, which has businesses spanning gas trading and CGD as well as smaller segments, reported a 68% jump in Ebitda to ₹1,300 crore, helped by its gas-trading business.
GEL was formed through the amalgamation of group entities across the natural gas value chain, which took effect in May, followed by the demerger of its transmission business in July.
So far in calendar 2026, MGL shares are up a marginal 0.3%, while IGL has corrected about 22%, bringing its valuation closer to MGL’s. GEL shares have lost 8.4% since 16 July, following the demerger of its transmission business.
Shares of MGL, IGL and GEL are trading at one-year forward price-to-earnings multiples of about 11.7, 11.0 and 9.5, respectively, Bloomberg data showed.
Management commentary for Q1FY27 indicates that CGDs expect healthy volume growth, driven by CNG and D-PNG, but acknowledge near-term margin pressure from high gas costs. The government scheme therefore offers some short-term relief, but a resolution to the West Asia conflict and softer crude oil and gas prices may be needed for the stocks to regain investor interest.
A Nuvama Research report dated 18 August cautions that CGD multiples could de-rate amid uncertainty over ad-hoc government policies and persistent margin headwinds.