The brokerage slashed its target price for MGL by 35% to Rs 1,164 and for IGL by 31% to Rs 373, reflecting downward revisions in EBITDA estimates, concerns about slower volume growth, and expectations of narrower profit margins in the coming years.
For IGL, EBITDA per standard cubic meter (scm) has been slashed by 26.4% for FY25, with the long-term EBITDA average revised down from Rs 8.1/scm to Rs 6.5/scm. MGL faces similar challenges, with its long-term average EBITDA/scm reduced to Rs 10.42, reflecting a 16% decline.
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The sudden and successive cuts in APM gas allocation have disrupted the CGD sector, which had gradually adapted to previous allocation reductions, bringing it from 94% to under 70%. However, the accelerated pace of these cuts has caught companies off guard, forcing them to rely more heavily on expensive LNG to meet demand.
The additional costs are expected to lead to significant CNG price hikes, which could erode consumer affordability and further compress margins. Nirmal Bang estimates that EBITDA growth for both companies will remain under pressure through FY27, with limited scope for operational recovery in the near term.While the government has shown support for CNG as a cleaner fuel alternative, policy actions have been somewhat inconsistent. The brokerage suggests that relief measures, such as excise duty cuts, could partially offset the financial burden. A reduction of 5-6% in excise duties could lower CNG prices by Rs 3-4 per kilogram, providing some relief to consumers and aiding volume recovery. However, the lack of a clear long-term policy framework continues to weigh heavily on investor sentiment.Also Read: Zinka Logistics IPO Day 3: GMP, price band, subscription, key dates and review
Financial forecasts for the companies suggest a challenging outlook. For FY25, IGL’s revenue is projected to grow by 9%, but PAT is expected to decline by 26%, with EBITDA margins revised down to 11%. MGL is likely to see a 7.5% increase in revenue, but PAT is forecasted to drop by 21%, with EBITDA margins reduced to 22% from the earlier estimate of 24%.
The broader CGD sector is facing rising costs, regulatory uncertainties, and competitive pressures. While positive developments, such as price adjustments or tax reliefs, could prompt short-term rallies, the overall outlook remains uncertain. Investors are likely to remain cautious until the sector demonstrates clear signs of operational recovery and policy stability.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)