IGL impact: Gas stocks bleed on tariff revision fears

Indiraprastha Gas, the monopoly supplier of gas in Delhi, today tanked 45 percent on Dalal St in opening trade after the govt regulator directed it to cut tariffs for certain types of gas in New Delhi

FP Staff April 10, 2012 10:28:23 IST

Indiraprastha Gas, the monopoly supplier of gas in Delhi, today tanked on Dalal St in opening trade after the Petroleum and Natural Gas Regulatory Board (PNGRB) reportedly ordered cuts in tariffs for CNG and PNG to Delhi consumers a bid to reduce prices.

IGL impact Gas stocks bleed on tariff revision fears

The price of compressed natural gas (CNG) in the capital could come down by 20% and of piped natural gas (PNG) by 10% in the wake of the PNGRB order. Reuters

PNGRB also directed the company to refund excess tariff. IGL currently charges a network tariff of Rs 104.05 per MMBTU (million British thermal Units). In addition, it also levies compression charges at Rs. 6.66 per kg for compressed natural gas (CNG). However, reports suggest that the tariff was very high compared to the extent PNGRB notified rates.

The government regulator directed the utility to cut gas tariffs in New Delhi, which raised fears that similar actions would follow and hit profit margins in the sector. Other energy stocks that have significant stake in the company also declined.

Indraprastha Gas stock slipped 35 percent at Rs 225, , while Gail India stock was also down 4 percent at Rs362. Shares of GSPL was down 8 percent at Rs70, while Gujarat Gas stock was 7 percent at Rs373. Shares of Petronet LNG was also down 4 percent at Rs158.

The price of compressed natural gas (CNG) in the capital could come down by 20 percent and of piped natural gas (PNG) by 10 percent in the wake of the PNGRB order, reported the Business Line today.

IGL may have to take a hit of Rs 1,000 crore. The order has sharply reduced, with restrospective effect, network rates and compression charges. IGL is likely to challenge the PNGRB order.

Under this scenario, IGL will struggle to make even normative returns on the capital it has invested in the business, in our view," said Citigroup analysts in a note to clients on Tuesday. The total refund could be Rs 900-1,200 crore, which is 20-25 percent of current market capitalization, Citi said.

HSBC too has downgraded the stock to 'underweight' and cut the target price to Rs 150 per share from Rs 366 per share. The company can make up for lower tariff by higher marketing margin, but it may be short-lived.

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