Indraprastha Gas Limited’s stock rose nearly 2 percent in early morning trading on NCL yesterday after CNG prices in Delhi and NCR were again increased. This will help the city gas distributor to offset rising input costs and protect profit margins, it said.
IGL, one of India’s biggest city gas distribution companies, increased CNG prices by ₹3.89 per kg in Delhi-NCR for its operating markets. Retail CNG prices in Delhi-NCR, as a result of the price increase, increased to ₹86.98 per kg and consumers in Noida and Ghaziabad will pay ₹95.59 per kg. In Gurugram, the revised rate is ₹92.01 per kg.
The price increase was the result of a significant increase in imported liquefied natural gas (LNG) prices as a result of global supply interruptions and high international energy prices. The LNG costs have also been up and up, IGL said, and therefore price adjustments are necessary to provide CNG to customers all over the region.
Market participants welcomed the decision, confident that it will ensure IGL still makes money in an energy sector that is not as robust as a business that IGL is used to in the world without a lot of investment in it. City gas distributors often feel margin pressure when fuel procurement costs go up sharply, analysts said. Investors have taken this step of passing part of these costs to customers because they are always looking at the future of earnings. CNG price hikes earlier this year had also been positive for IGL shares.
The rise comes at the same time the global energy market is still volatile. Industry experts have attributed the rise in LNG prices to supply concerns and geopolitical tensions in West Asia, a critical region in global energy exports. IGL said international LNG prices have increased dramatically, leading city gas distributors to re-examine pricing structures.
Investors were pleased with that, but transport operators and vehicle owners who depend on CNG as an affordable fuel alternative were not accepting of the pricing change. Auto-rickshaw and taxi unions in Delhi have expressed concern that with more fuel price increases recurring they may be charged higher than they can afford and this could ultimately affect commuters. But IGL has remained adamant that the price change is necessary because gas procurement costs are increasing drastically.
The company is still one of the biggest players in the city gas distribution industry in India and supplies CNG and piped natural gas in Delhi and its surrounding areas. With millions of people depending on its services, any change in fuel pricing will have a major impact on the transportation industry as well as on investors’ sentiments.
IGL's stock performance in the near future will largely depend on the global LNG price trend, gas allocation policy, and the price of consumers and shareholders’ affordability, analysts say. If international energy prices are still high and there is a need for further pricing adjustments, then the company’s earnings outlook and market price will remain a key factor to know.
The IGL stock rally shows that investors often perceive fuel price adjustments as a backstop to protect margins during times of rising energy costs. Investors and consumers will also be watching IGL in the energy market as we see everything in energy.
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