The Indian energy sector is witnessing a notable shift as the government has hiked Administered Price Mechanism (APM) gas prices by 4%, marking the first increase since April 2023. This adjustment brings the new APM gas price to $6.75 per mmBtu for the April-September 2025 period, up from $6.5 per mmBtu in the first quarter of 2025.

This development has triggered investor interest in major gas stocks, including Oil & Natural Gas Corporation (ONGC) Ltd., Oil India Ltd., GAIL, and city gas distributors like Indraprastha Gas Ltd. (IGL), Mahanagar Gas Ltd. (MGL), and Gujarat Gas Ltd.. With the revised pricing, these stocks are likely to experience an impact on profitability and revenue streams, prompting market analysts to reassess their valuations.

Jefferies Sees Strong Upside for ONGC

According to a recent note by Jefferies, the APM gas price hike is a major positive for ONGC. The brokerage firm projects that ONGC’s Earnings Per Share (EPS) will grow at a Compound Annual Growth Rate (CAGR) of 14% from FY25 to FY27. This growth is attributed to reforms in both gas and crude pricing, which could significantly enhance the company's revenue.

Jefferies' outlook on ONGC suggests that:

• The price revision is expected to boost ONGC’s financial performance in the coming years.

• Investors may see a long-term upside in ONGC stock, especially amid global energy price fluctuations.

• Government-backed pricing reforms could support the overall profitability of India's oil and gas sector.

Impact on City Gas Distributors

While major oil and gas companies like ONGC and Oil India stand to benefit, the price hike also holds implications for city gas distributors (CGDs) like IGL, MGL, and Gujarat Gas.

These companies have faced significant pressure in recent months, with:

• IGL’s stock down 28% from its peak as of last Friday.

• MGL’s stock declining by 30%, reflecting investor concerns over profitability and margins.

The latest APM gas price revision could provide some relief to these companies, potentially improving their pricing power and revenue outlook. However, the extent of margin recovery remains uncertain, as CGDs often face cost-related challenges linked to regulatory changes and global energy trends.

Broader Market Implications

The oil and gas sector plays a crucial role in India's energy security and industrial growth. With the latest price hike, several key trends could emerge:

• Higher gas prices may lead to increased revenue for upstream producers like ONGC and Oil India.

• City gas distributors may pass on costs to consumers, affecting demand in the domestic and industrial segments.

• The stock market could witness a re-rating of gas stocks, depending on investor sentiment and future government policies.

Conclusion

The government’s decision to hike APM gas prices by 4% has reignited interest in India's gas sector stocks. While upstream producers like ONGC and Oil India are set to benefit from improved pricing, city gas distributors like IGL and MGL may find relief amid recent market pressures. Jefferies' projection of a 14% CAGR growth in ONGC’s EPS underscores the positive long-term impact of energy pricing reforms on the industry. Investors and analysts will closely monitor further developments in the sector to assess the broader implications on stock valuations and energy pricing trends.

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