MGL, IGL, Gujarat Gas: Should you buy, hold or sell these 3 stocks amid correction?

City gas distributors Mahanagar Gas Ltd (MGL), Gujarat Gas Ltd and Indraprastha Gas Ltd (IGL) declined up to 5 per cent in Wednesday's trade in a fresh round of selloff, taking their six-month fall to 26-32 per cent. The fresh selling on these counters came as IGL and MGL in separate press releases suggested that APM gas allocation has been reduced by 18-20 per cent with effect from April 16 over the previous fortnight’s allocation. 

This cut effectively reverses the partial reversal in Jan 2025 for allocation cuts in the December quarter. While analysts have negative view on the segment in the short-term, a few prefer Gujarat Gas among the three CGDs. 

On Wednesday, Gujarat Gas was trading 0.7 per cent lower at Rs 429.35. MGL shares fell 4.8 per cent to Rs 1,252.50. IGL was down 1.37 per cent at Rs 176.51. 

"Even as lower volumes are replaced by NWGs, CGDs will need to take a CNG price hike of Rs1.5-2.0/kg. Price increases have been difficult politically and due to the likely impact on demand. Similar to previous cuts, CGDs will likely seek some relief apart from raising prices  
Brokerages such as JM Financial noted that the reduction in cheaper APM gas allocation (priced at 10 per cent of India’s imported crude price with a ceiling of $6.75/mmBtu for FY26) has been replaced with allocation of higher cost NWG gas (New Well Gas – priced at 12 per cent of India’s imported crude price). 

"We believe this is likely to lead to effective reduction in APM allocation for the CNG business to 40 per cent from the current 51 per cent (and against 70 per cent before October 16, 2024)," it said. 

While APM allocation cut was expected around April, as also highlighted by the managements during their 3QFY25 concalls, the quantum of cut is a bit higher. 

"As per our calculations, CGD companies might need to hike CNG price hike by Rs 0.65/kg to Rs 1.2/kg depending on crude price assumption of $60-75/barrel. Hike in CNG price by Rs 0.65-1.2/kg is likely to further reduce competitiveness of CNG vis-à-vis: a) petrol to 39-42% and b) diesel to 20-21 per cent," JM Financial said.

This brokerage maintained 'Sell' on IGL and MGL due to structural risk to pricing power in CNG, but reiterated 'Buy' on Gujarat Gas on likely improvement in competitiveness against propane with likely moderation in spot LNG prices.

Kotak holds negative view on CGDs. It reiterated 'Sell' on IGL and suggested a fair value of Rs 150 on the stock. For MGL, Kotak sees Rs 1,030 as fair value. The brokerage did not offer target on Gujarat Gas. 

"We maintain HOLD on MGL and Gujarat Gas, and SELL on IGL. With this deallocation of 3 mmscmd of APM gas to NWG, ONGC to benefit with Ebitda increase of Rs 500 crore (+0.6 per cent)," Antique Stock Broking said. Antique suggested a target of Rs 410 on Gujarat Gas, Rs 179 on IGL and Rs 1,316 on MGL.