CGD stocks slump up to 31% in a year. Can LPG crisis fuel fresh interest in IGL, GAIL, and others?

Down up to 31% over the past year, the city gas distribution (CGD) stocks have come into focus amid the ongoing LPG crisis and the government’s nudge for consumers to switch to PNG connections. While the scrips appear weak on a technical basis, CGD is a consumption theme backed by stable business, making them a fundamental play in the medium-to-long term. Here’s what experts suggest.

As the crisis deepens, the government said it will cut LPG supply to consumers who do not switch to PNG connections in areas where piped gas is available. The government has also authorised CGD companies to develop a network in 307 geographical areas across the country, according to a Business Standard report.

The government has also asked CGD entities to prioritise PNG connections for commercial establishments such as restaurants and hotels while expediting the disposal of applications within 10 days.

Joint Secretary in the Ministry of Petroleum and Natural Gas (MoPNG), Sujata Sharma said around 2.5 lakh new PNG connections—domestic as well as commercial—have been provided and 2.2 lakh LPG users have shifted to PNG, The Indian Express reported.

Kranthi Bathini, Director-Equity Strategy at WealthMills Securities called CGD companies like GAIL (India), Mahanagar Gas Limited (MGL), Indraprastha Gas Limited (IGL) and Adani Total Gas Limited (ATGL) as companies with stable operations. He sees this as an opportunity to accumulate these scrips but refuses to pick his favourites.

In the medium-to-short term, supply chain bottlenecks, energy prices, and the demand-supply equation will weigh on these companies’ performance, but the nature of their businesses will always keep them in demand, Bathini added.

He said stock prices could see a short-term spike if LPG shortages persist and accelerate the shift to PNG, therefore the investors already holding the stock, should continue to stay invested.

Share price performance

CGD stocks have underperformed the markets, slipping up to 31% over a one-year period. MGL is the top loser in the pack, followed by a 25% correction in IGL. GAIL and ATGL have declined 22% and 14%, respectively, in the same period.

Technically, the stocks’ chart structure shows weakness and any move from here should happen after the confirmation of trend reversal, Nilesh Jain, Vice President – Head of Technical and Derivative Research at Centrum Finverse suggested. Existing investors can hold longs while new ones should wait for now,” Jain added.

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On ground situation

Emkay notes that gas allocation for CNG and domestic PNG (DPNG) remains stable, with diverted gas pool prices at $10–12/mmbtu. Though, the government’s priority towards commercial PNG (CPNG) users such as restaurants, hospitals and schools—along with supply adjustments by GAIL, has squeezed availability for industrial PNG (IPNG) customers to 50% of normal volumes.

As a result, CGDs are seeing moderate volume and margin pressure, this brokerage said.

IGL and MGL are likely to witness a 5% volume decline each, with EBITDA/scm falling by Rs 0.6–0.7. In contrast, Gujarat Gas Limited is more impacted due to its higher industrial exposure, with a 15–20% volume hit and Rs 1.5–2 decline in EBITDA/scm.

Despite near-term headwinds, Emkay believes valuations for CGDs remain reasonable, and the sector is neutrally placed from an investment perspective.

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(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)