My take on the present situation (been an investor in IGL for more than 10 years and working in national oil Company) is as follows. CGD Companies are enjoying a very huge gross margins for too long and their profitability is very high due to pricing freedom of product and availability of APM gas at cheap price. This situation was about to change in 2012 when PNGRB ruled that it has the right for determining CNG/PNG cunsumer price but Delhi high court turned down PNGRB’s order and pricing freedom was restored. The balance between producers, mid-stream distributors and consumers has to be maintained. In the present situation this balance is tilted in favour of consumers ( due to govt"s environmental push) and distributors are enjoying their natural monopoly and pricing freedom. Producers are suffering and not generating enough surplus for reinvestments. This situation is not sustainable and Govt & PNGRB ( New PNGRB Head is Ex-ONGC CMD) are aware of this.
While i do not see any drastic price regulation move as that will scuttle CGD growth but there is some head room to increase CGD prices as there is a significant discount vis a vis alternatives such as diesel for CNG and LPG for PNG. This can be done without effecting demand in any meaningful manner.
APM prices to the producers may be increased so that a healthy reinvestment surplus is generated by producers.
High profitability and margins of CGD companies may not be sustained if gas cost is increased which looks likely. Anyway product prices for utility companies with natural monopoly are based on cost plus reasonable profits and not market based prices.
LNG is still costly vis a vis domestic gas and given low availability of domestic gas , its use is continuously increasing despite high cost. Global availability is likely to be high and cost is likely to remain stable due to global supply-demand factors.
Overall growth outlook for CGD companies is good but profitability is difficult to sustain. Valuation implied a sustainable growth and profitability. I remain cautious.
(Have sold one third of my holding recently so views may be biased)