The city-gas distribution sector is navigating its most challenging period in years, with Mahanagar Gas Ltd and Indraprastha Gas Limited at the epicenter of a crisis that has fundamentally altered their cost structures.
The West Asian conflict has severely disrupted global energy supply chains. The Strait of Hormuz, through which nearly 20% of global oil and LNG trade passes, has seen effective closure since March 1, 2026. For India, which imports roughly half its LNG through this route, the impact has been immediate and severe. Petronet LNG's Dahej terminal utilization dropped to 53% in March compared to 108% in January-February, creating acute supply shortages. Transcripts
Simultaneously, domestic gas allocation has been curtailed. Following a government notification on March 9, 2026, city-gas distribution supplies were restricted to the last six months' average sales volume. For Mahanagar Gas Ltd, this meant industrial and commercial customers had their supply curtailed to approximately 80%, with about 20% volume reduction. In March alone, the company lost around 1.25-1.3 lakh scmd from a February average of 5.75 lakh scmd. Transcripts +1
The third blow came from currency depreciation. The Indian rupee's decline against the dollar has added 3-5% to import costs, which is particularly significant for gas procured from international markets linked to Brent and Henry Hub indices.
The reduction in domestic allocation has created a direct causal chain forcing distributors to source from higher-cost markets. When domestic supply is limited to historical averages but demand continues growing, companies must turn to spot markets to meet incremental needs. This structural shift has transformed the procurement cost landscape.
Gas procurement costs tell the story starkly.
Q4 FY26 saw gas costs reach ₹35.11/SCM, up from ₹31.39/SCM in Q4 FY25. The consequence: gross profit per SCM declined from ₹17.80 in Q4 FY25 to ₹13.34 in Q4 FY26—a 25.1% compression. InvestorPresentations +1
Pool gas prices have increased to the $11-13 range from earlier periods when Brent crude was trading at $60-65. With Brent now at $90-100, the cost pressure is relentless. New Well Gas prices spiked to around $14 before stabilizing in the $11-11.5 range. Transcripts +1
The response from city-gas distributors has been swift and unprecedented.
This represents a fundamental shift in pricing strategy, moving away from the previous approach of absorbing short-term volatility for stability.
Indraprastha Gas Limited has been even more aggressive, implementing four hikes totaling ₹6/kg between May 15-26, 2026. The sequence: ₹2 on May 15, ₹1 on May 17, ₹1 on May 23, and ₹2 on May 26, taking Delhi's price to ₹83.09/kg.
This synchronized action across major operators confirms universal exposure to the same cost pressures. The shift from monthly or quarterly price revisions to bi-weekly adjustments indicates a systemic change in how CGD companies manage input cost inflation.
Perhaps the most telling indicator of cost pressure severity is Mahanagar Gas Ltd's decision to discontinue all support schemes and subsidies for commercial customers with immediate effect. Announced on May 25, 2026, this includes downstream piping cost absorption and monthly bill subsidies for self-funded installations.
Subsidies are typically maintained even during cost pressures to support customer retention and adoption. The complete withdrawal signals a permanent structural change in the cost environment rather than a temporary disruption. It's a last-resort measure that indicates the company can no longer absorb these costs.
The pricing strategies of Mahanagar Gas Ltd and Indraprastha Gas Limited reflect their different market positions and cost structures. MGL, operating as a monopoly in Mumbai MMR, has implemented larger but less frequent hikes (₹2 each). IGL, facing competitive dynamics in Delhi NCR and operating across multiple states with varying VAT rates, has opted for smaller, more frequent adjustments.
Regional price variations of ₹10-15/kg across India reflect fundamental differences in procurement costs, tax structures, and market dynamics. Gujarat, for instance, maintains CNG prices around ₹82-83/kg—among the lowest in India—due to higher domestic gas allocation and proximity to LNG terminals. In contrast, UP cities like Kanpur see prices at ₹94.42/kg due to higher VAT rates and longer supply chains.
The financial performance of both companies reflects these pressures. Mahanagar Gas Ltd has seen EBITDA margins decline from 36.4% in FY24 Q1 to 14.0% in FY26 Q4—a 22.4 percentage point compression. Net profit margins followed a similar trajectory, dropping from double digits to single digits. Transcripts
The cumulative ₹4/kg CNG price increase will provide partial margin recovery, with EBITDA margins expected to improve to 14.9-15.5% in Q1 FY27 from 14.0% in FY26 Q4. However, even with these hikes, margins remain ₹2-4/SCM below historical peaks, indicating a permanent structural change.
This acceptance that historical margin levels are no longer achievable represents a new normal for the industry.
The impact of these price hikes will vary significantly across customer segments. Commercial customers face high price sensitivity with expected churn rates of 15-20%. For operators covering 120-180 km daily, the ₹2/kg hike translates to additional monthly costs of ₹3,200-4,800—substantial enough to trigger fuel switching to diesel or LPG alternatives.
Retail customers demonstrate lower elasticity due to structural factors. Auto-rickshaws and taxis in Mumbai are mandated to use CNG by regulatory requirements, and transport unions can pass through cost increases to consumers. The Mumbai Rickshawmen's Union has already sought a ₹1 increase in minimum fare (from ₹26 to ₹27) to offset higher operating costs.
Private CNG vehicle owners face switching costs due to existing kit investments (₹35,000-78,000), making immediate switching less likely. However, the payback period for CNG conversion has extended from 6-8 months to 8-10 months, which may slow new conversions.
Despite price increases, natural gas adoption in Mumbai shows resilience. CNG maintains a 40-45% cost advantage over petrol and 8-10% over diesel even at ₹86/kg. The environmental benefits—25% lower CO₂ emissions compared to petrol, near-zero particulate matter vs diesel—continue to support adoption, though growth rates have moderated from 20% annually to 12-15%.
Domestic PNG adoption shows even greater resilience. The ₹0.5 per SCM increase will have minimal impact due to PNG's essential service classification, convenience value (24×7 supply without cylinder booking), and safety advantages. PNG remains 20-30% cheaper per unit of heat than LPG for most households.
The city-gas distribution sector faces a prolonged period of adjustment. The synchronized pricing actions across all major operators confirm that the cost pressures are systemic, not company-specific. The shift from high-margin to high-volume operations appears inevitable.
For Mahanagar Gas Ltd, the strategy has pivoted toward infrastructure expansion and volume growth, with the company targeting double-digit volume growth and EBITDA/SCM above ₹8 for FY27. The integration of Unison Enviro Private Limited, expanding geographical footprint beyond Maharashtra into Karnataka and Telangana, represents a defensive play against these headwinds.
The discontinuation of commercial subsidies, while painful in the short term, may improve revenue quality in the long term. However, customer retention—particularly among small commercial operators—remains a significant risk. The company's ability to implement targeted retention programs and value-added services will be critical to mitigating churn.
As the industry adapts to this new normal, the companies that successfully balance margin protection with volume growth, while investing in infrastructure and customer retention, will emerge stronger. The era of easy margins in city-gas distribution may be over, but the fundamental demand for cleaner, cheaper energy alternatives remains intact.
