High Gas Costs and Policy Uncertainty Keep CGD Outlook Muted

The Indian central government introduced a six-month policy scheme starting 1 September to boost domestic piped natural gas (D-PNG) adoption by allocating an additional 200 standard cubic metres (scm) of lower-cost Administered Price Mechanism (APM) gas for each new customer acquired. Cost Savings Potential: Because household gas usage is well under 200 scm, companies can replace costlier market-priced gas with cheaper APM gas, offering potential pre-tax profit relief of up to ₹110 crore for MGL and ₹20 crore for

(based on $12/mmbtu market vs. $7/mmbtu APM rates). Focus on Existing Networks: Since the incentive is a temporary, one-time allocation, distributors are expected to prioritize converting inactive connections in already-connected areas rather than expanding network infrastructure, bridging the gap between 1.74 crore total connections and 1.1 crore active users. Weak Q1FY27 Financial Performance: Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) suffered year-on-year EBITDA declines of 42% and 12%, respectively, whereas Gujarat Energy Ltd (GEL) saw EBITDA rise 68% primarily due to its gas-trading division following corporate restructuring. Mixed Stock Market Performance: Year-to-date, MGL shares are up 0.3%, IGL has dropped around 22%, and GEL lost 8.4% after its July transmission business demerger, leaving the trio trading at roughly 9.5 to 11.7 times 1-year forward P/E. Persistent Long-Term Headwinds: Although volume growth expectations remain positive, analysts warn that long-term recovery depends on lower global gas prices and a resolution to West Asia geopolitical tensions, as ad-hoc policy shifts continue to weigh on stock valuations.