MGL, IGL, Gujarat Gas: Target prices as PNGRB notifies natural gas pipeline tariff reforms

City gas distributors: The Petroleum and Natural Gas Regulatory Board (PNGRB) has approved a significant amendment to its Natural Gas Pipeline Tariff Regulations, 2025—changes that are expected to realign the cost structure for city gas distributors (CGDs) and pipeline operators alike. According to a fresh note by brokerage Emkay Global, the reforms could bring notable gains for Indraprastha Gas Ltd (IGL), while posing some challenges for Mahanagar Gas Ltd (MGL) and Gujarat Gas.

For now, the brokerage has a 'Buy' rating on MGL with a target price of Rs 1,700. It has 'Add' rating on Indraprastha Gas with a target of Rs 230 and 'Reduce' rating on Gujarat Gas with a target price of Rs 480.

The second amendment introduces zonal realignment, removes the unified tariff (UFT) for Zone 3, and mandates pipeline players to procure 75 per cent of their system use gas (SUG) through long-term contracts. In a move aimed at boosting affordability, all CNG and domestic PNG customers will now fall under Zone 1 tariffs, regardless of their proximity to the gas source.

Emkay Global suggested that the shift is revenue-neutral for pipeline operators, but the redistribution of volumes—particularly the removal of Zone 3—will effectively raise tariffs in Zones 1 and 2. While this could put pressure on companies operating predominantly in Zone 1, those with a higher exposure to Zone 2 may benefit.

Among listed players, Emkay sees IGL as the standout beneficiary. The brokerage notes that most of IGL’s core operating areas—such as the National Capital Region—fall under the current Zone 2. Moving these to Zone 1 could boost the company’s blended Ebitda per scm by nearly 10 per cent. Based on this, Emkay has revised IGL’s earnings estimate upward by 15–16 per cent, and increased the target price by 9 per cent to Rs 230, factoring in a higher Ebitda assumption of Rs 7/scm (up from Rs 6/scm earlier). The ‘ADD’ rating on IGL is retained.

In contrast, MGL, which already operates mostly in Zone 1, may face a 3–5 per cent dip in Ebitda/scm, Emkay Global warned. Despite this, the domestic brokerage has maintained its earnings forecast, target price, and 'Buy' rating on the stock.

Gujarat Gas is also expected to face headwinds. With a dominant portfolio of industrial and commercial PNG, and significant exposure to Zone 1, the reforms could reduce its profitability. Emkay Global retains a ‘Reduce’ rating on the stock, maintaining its earlier estimates pending further clarity.

The brokerage noted that the current UFT across Zones 1, 2 and 3 stands at Rs 42, Rs 80, and Rs 107 per mmBtu, respectively. With Zone 3 eliminated and more volumes brought under Zone 1, Emkay expects Zone 1 tariffs to rise to around Rs 55/mmBtu, and Zone 2 to around Rs 85/mmBtu, assuming Zone 1 remains 66 per cent of Zone 2. At these levels, IGL and MGL—where priority sector volumes make up 81 per cent and 85 per cent, respectively—would see a blended Ebitda impact of +Rs 0.7 and -Rs 0.4 per scm. For Gujarat Gas, the impact could be roughly negative 10 per cent.

Emkay also felt that gas pipeline development reserves—a new provision under the amendment—could be sentimentally positive for Gujarat State Petronet Ltd (GSPL) and GAIL. Under the new rules, 50 per cent of net tax earnings from pipelines operating above 75 per cent utilization will be allocated toward future capital expenditure, while the rest will be passed on to customers through lower tariffs. This is a shift from the current model, where the entire benefit is passed to customers.

While GSPL could qualify for this reserve, Emkay said the impact may not be meaningful given its low capex run-rate. For GAIL, whose HVJ pipeline is nearing 75 per cent utilization, the brokerage expects a positive effect over time. However, quantifying this is difficult due to its participation in a larger integrated network.

Emkay maintained its existing 'Buy' rating on GAIL and 'ADD' on GSPL, with no changes to earnings or target prices. For GAIL, a broader tariff hike remains the key catalyst being closely watched.

The brokerage concluded that while the overall regulatory reform is structurally positive for gas infrastructure and long-term affordability, further clarity from the PNGRB and management commentary will be crucial in assessing the exact financial impact for each player.