City gas distributors may face margin pressure; Indraprastha Gas, Mahanagar Gas, Gujarat Gas shares drop

Shares of gas companies declined on October 3 after the government hiked natural gas prices by a steep 40 percent to record levels, in sync with the strong energy rates globally.

On Friday, the rate paid for gas produced from old fields, which accounts for about two-thirds of all gas produced in the country, was hiked to $8.57 per million British thermal units from $6.1, as per an order from the oil ministry’s Petroleum Planning and Analysis Cell.

At 10:30 am, shares of Mahanagar Gas were down 3.2 percent to Rs 805.7 on the BSE, while those of Indraprastha Gas fell 3.3 percent to Rs 383.6 and Gujarat Gas declined 0.6 percent at Rs 499.85.

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This price hike could put pressure on the margins of gas distribution companies.

The companies believe that the price hike will impact sales volume and even the pace of expansion, The Economic Times reported quoting officials aware of the matter.

Meanwhile, Harsha Upadhyaya of Kotak Mahindra Asset Management Company told CNBC-TV18 today in an interaction that the gas price hike will plague city gas distribution companies as passing on price hikes could be difficult.

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Upadhyaya said he would relook at his positioning in city gas distribution companies as gas prices start cooling off.

Motilal Oswal Financial Services also voiced a similar opinion that a price hike in natural gas will negatively impact city gas distribution companies. Infact, it expects a further hike in domestic gas price in the next revision in April 2023.

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