City gas distributors set for margin rebound in FY26

New Delhi: City gas operators, selling CNG to automobiles and piped cooking gas to household kitchens, are expected to post an operating profit of Rs 7.2–7.5 per standard cubic metre (scm) in the current fiscal, an 8–12 per cent recovery from the sharp margin erosion seen in the second half of last year, Crisil Ratings said Thursday.

The rebound comes as city gas distributors (CGD) operators secure higher volumes of contracted gas to counter last year's steep cut in administered price mechanism (APM) allocation for the compressed natural gas (CNG) segment.

A sudden drop in APM supply during the latter half of 2024-25 had forced CGD players into the spot market, where gas was 80–100 per cent costlier than APM-linked volumes.

Spot purchases surged to over 15 per cent of total supply, from about 5 per cent in the first half of the year, pushing up procurement costs. Companies have since shifted towards medium- and long-term contracts to stabilise supplies and reduce volatility.

"CGD companies will clock an operating profit of Rs 7.2–7.5 per scm this fiscal, up 8–12 per cent compared with the second half of last fiscal," Crisil Ratings said in a note. With the sharp decline in allocation of cheaper APM gas, which is turned into CNG for supply to automobiles and piped to households and industries, CGD companies had to take recourse to the spot gas market for supply, which exerted upward pressure on cost.