Shares of major city gas distribution companies took a sharp hit on Monday, November 18, as the central government announced a second consecutive cut in the administered price mechanism (APM) gas allocation. Stocks of Indraprastha Gas, Mahanagar Gas, and Gujarat Gas plummeted by 9-20% intraday, while Adani Total Gas dropped 5% on the National Stock Exchange of India (NSE).

The government's decision reduced the APM gas allocation to these companies by another 20%, following a 14% cut in the previous month. This leaves city gas distributors reliant on higher-priced alternatives like spot LNG and High-Pressure High-Temperature gas, increasing their operational costs and pressuring margins.

APM gas, regulated and priced lower than market rates by the Ministry of Petroleum and Natural Gas, is a crucial component for these companies. With allocations now at just 40-45%, analysts warn of potential earnings hits unless significant price adjustments—estimated at ₹7 per kg or more—are made. However, state elections could limit their ability to pass on these costs to consumers.

This development signals challenges ahead for the sector, with investors reacting strongly to the increased cost burden and its impact on profitability.