Share price of gas distributors gained on Thursday after the government cuts natural gas prices by 20 per cent to $3.06 per mmbtu for April-September period. Gas distributors such as Gujarat Gas, Indraprastha Gas (IGL) and Petronet LNG were trading higher by 3.23 per cent, 1.88 per cent and 0.49 per cent, respectively, in the afternoon deals.
According to analysts, the reduction in gas price would mean that gas distributors’ raw material costs will decline and margins expand.
Religare Institutional Research in a research note said, “IGL should gain the most from the price cut, considering domestic gas constitutes around 70 per cent of its gas sourcing mix (allotted for CNG and domestic PNG segments) and GAIL’s margins for the LPG business should expand by 10 per cent with this price reduction.”
On the other hand, shares of state-run explorers such as ONGC and GAIL were trading in red in the afternoon deals. ONGC was down 0.85 per cent at Rs 216 (at 1.53 pm), while GAIL was trading 1.77 per cent down at Rs 353.40 at the same time.
Price cut will hurt gas explorers profitability, said analysts.
As per the new gas pricing formula approved by the NDA-government in October 2014, gas prices are to be revised every six months.
(With inputs from Reuters)