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00:00joining us for more on this. Prabal, great to have you on the show.

00:03Let's begin with your assessment of how deep the cut will be.

00:09Our understanding obviously is with a 20% cut that involves anywhere between 0.4 to about 0.9

00:16mmHg of gas reduction. If we look at the volume estimates we were building in for next year,

00:21looking at it from a very near-term perspective, it probably will be slightly less than that since

00:26we were building in 7-8% volume growth for IGL and about 10% for MGL in our base case estimate.

00:33Whichever way you look at it, it's a very significant cut. One of the things that

00:37needs to be remembered is this APM gas allocation is being cut steadily since FY23.

00:44The number has reduced from close to 100%, in fact, two to three years ago, to about 70% now.

00:49It's not as if the allocation of 70% was supposed to last for any particular period of time,

00:57except that I think most of us were building in a more gradual decline in this number,

01:02in line with the slower production coming through from some of these older fields.

01:06But what the government has done is diverted this gas to the purposes of Petrochemical,

01:12and others have shifted it to more premium gas prices.

01:18So, obviously, the extent of cut is a bit of a negative surprise for the markets.

01:25Sorry, Harsh, also joining in. Therefore, do you believe that your estimates now,

01:32going forward, in terms of a cut, change materially, given that this large reduction

01:37has come unexpectedly? Honestly, we would still want to wait for a while. We have not really

01:43changed our basis estimates as of now. What we are obviously wanting a little bit more clarity

01:48on is how soon and to what extent can prices be basically raised. We understand, obviously, that

01:55right now there are some state elections, there are some other events, specifically in Delhi and

02:00Mumbai, which could prevent this being a pass through completely. And also the extent of the

02:05price required, which is about four and a half to six rupees a kg. That makes it doubly difficult,

02:10because then if you were to pass on the entire benefit at one go, rather the entire hit at one

02:17go, then obviously there could be an impact on volumes as well. Having said that, what we have

02:22seen, as I mentioned earlier, over the last couple of years is that if this price hike is basically

02:28taken in gradual installments, you could have an absorption basically happening, specifically

02:33because the difference of CNG with petrol and diesel continues to remain extremely

02:42significant. It's still in the range of around 35 to 45 percent. And therefore, if you don't

02:48want to pass on the stock together, we are still hopeful that there could be some

02:53normalization that happens. We will have to basically look at the next couple of months and

02:57see what the response is of these companies before they are looking at our estimates again.

03:02And how does that change estimates overall, Prabal? Give us context. How does profitability

03:08therefore change now, given that there may be a need for a price increase as well? Is that at all

03:15on the cards for you, in your view? So there's two ways to look at it. Right now, if you look at

03:21the change in gas costs that has happened, which is anywhere between 90 cents to about a dollar

03:28plus on a blended basis for the three companies, if they are not able to pass on any of this,

03:34taking an example, taking an extreme example, and we look at FY26 EPS earnings, there is a 20 to 30

03:41percent hit on the EPS estimates. For example, if MGL I look at, which we are building in about 140

03:47rupees of EPS for FY26, there's a clear hit of more than 20 percent if they cannot pass on any

03:55of this. Now, obviously, that's an extreme example. I don't believe that that's going to be

03:59the case. However, if they were to pass on this hit in installments, then there could be still

04:07some downgrades that can come through in terms of earnings. How much, as I said, is something that

04:12we'll have to see. It's too early right now to sort of calculate that impact. And Prabal, on a

04:18comparative scale, are all these companies equally hit or do you see some more vulnerable

04:25than the others? For example, Gujarat Gas hasn't seen the kind of pummeling that maybe an MGL or

04:31an IGL has seen. Do you have that kind of a comparative in view of who would be worst off?

04:38No, I think very clearly Gujarat Gas has only about 30 percent of its business coming through

04:43from the domestic and CNG market. So, very clearly, the impact, therefore, of disruption

04:49in these operations on overall earnings is relatively lower. And one needs to remember

04:55that post the merger announcement when the stock had run up to 680, in any case, because of

05:00expectations of a very weak Q2, Gujarat Gas has anyways taken a hit from 680 to about 550 odd

05:07levels. And therefore, that's probably also contributing to a relatively lower impact

05:12on the stock today. As far as IGL and MGL is concerned, the business mix is fairly similar.

05:18Therefore, the impact would be fairly similar. The only difference that I would probably say

05:23is that MGL probably has tied up a lot more of thermal energy as well as some of domestic premium

05:30HPHT gas. And therefore, they're perhaps a relatively a bit better place to navigate

05:36this new situation versus, let's say, an IGL. I think that's the only distinction. Impact wise,

05:42I think it would be fairly similar. Okay, fair enough. Thank you, Prabhal.

05:45Always a pleasure to speak with you.

Natural Gas Allocation Slashed, City Gas Distributors Face Rising Pressure | NDTV Profit

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