Synopsis : A new government incentive effective September 1 could improve the economics of PNG expansion for city gas distributors by providing additional APM gas for incremental active households. Nomura believes Mahanagar Gas could emerge as the biggest beneficiary, ahead of Indraprastha Gas and Gujarat Gas, due to its low recent customer-addition base and lower gas consumption per household.
City gas distribution stocks are back in focus after a new government incentive created a potential opportunity for companies expanding their base of active PNG customers.
Effective September 1, the new scheme will allow city gas distributors, or CGDs, to access an additional 200 standard cubic metres of Administered Price Mechanism, or APM, gas for every incremental eligible household.
Among the major listed players, Nomura believes Mahanagar Gas, or MGL, could benefit the most.
Indraprastha Gas, or IGL, and Gujarat Gas are also expected to gain from the new policy. However, Nomura's analysis suggests that MGL has two important advantages: a lower recent base of household additions and lower annual gas consumption per household.
Those factors could allow the Mumbai-based city gas distributor to receive a relatively larger benefit from the additional APM gas allocation.
The key question for investors is simple: why does Nomura believe MGL could gain more than IGL and Gujarat Gas?
What is changing under the new APM gas incentive?
The new policy is aimed at improving the economics of expanding the piped natural gas, or PNG, network.
City gas distributors require significant capital expenditure to connect new households. The process of laying pipelines, developing infrastructure and adding customers can involve long payback periods.
According to Nomura, access to additional lower-cost APM gas could significantly improve those economics.
The brokerage estimates that the payback period for PNG-related capital expenditure could potentially decline from around 10 years to approximately three years.
That is a substantial change.
However, there is an important condition.
The benefit will be linked to incremental billed or active customers.
Nomura noted that “Only the increase in incremental ‘billed/active’ customers will be considered.”
In other words, simply adding a new connection may not be enough.
The customer must become an active, paying PNG user.
This means the market will need to focus more closely on active household additions rather than headline connection numbers.
Why lower-cost APM gas matters
APM gas is domestic gas supplied under the government's administered pricing mechanism.
For city gas distributors, access to a greater quantity of lower-cost gas can improve profitability or provide additional flexibility in pricing.
Under the new incentive, companies that add eligible active customers can potentially receive additional APM gas allocation.
The policy could therefore encourage CGDs to accelerate household additions and improve the conversion of existing connections into active, billed customers.
But the actual benefit will not necessarily be equal for every company.
That is where MGL appears to stand out.
Why Nomura sees MGL as the biggest beneficiary
Nomura's preference for MGL is based largely on the company's starting point.
During the April-June 2026 quarter, MGL added only around 9,700 new households per month.
That was significantly below its historical run-rate of approximately 28,000 to 30,000 households per month.
At first glance, slower additions may appear to be a negative.
But under the structure of the new incentive, Nomura believes MGL's low base could actually become an advantage.
The company has more room to accelerate household additions from its recent levels and potentially exceed the threshold used to calculate incremental APM gas allocation.
Nomura said that MGL benefits from “a very low base” and could potentially receive a much higher APM allocation if it significantly increases customer additions.
Since the overall APM gas pool may remain unchanged, a stronger increase in eligible additions could potentially allow one company to gain a larger share of the available allocation.
That creates an interesting opportunity for MGL.
If household additions recover closer to the company's historical run-rate, the improvement from the April-June base could be significant.
MGL's lower gas consumption creates another advantage
The second factor working in MGL's favour is household gas consumption.
According to Nomura, MGL's annual consumption is around 108 standard cubic metres per household, the lowest among the city gas distributors covered by the brokerage.
The government incentive provides an additional 200 scm of APM gas for every incremental eligible household.
If a new household consumes around 108 scm annually, the additional allocation could exceed the direct requirement associated with that customer's consumption.
This could leave MGL with a relatively higher amount of excess APM gas per incremental household compared with its peers.
Nomura therefore sees MGL as having “the highest excess APM allocation per new household added.”
That combination of a low customer-addition base and lower household consumption is the main reason Nomura sees MGL as the strongest potential beneficiary.
IGL is adding customers steadily, but lacks MGL's low-base advantage
Indraprastha Gas is also well positioned to benefit from the incentive.
The company added around 28,800 households per month during April-June 2026.
That is broadly in line with its historical pace.
Strong and consistent customer additions mean IGL should continue to qualify for incremental benefits as its active customer base expands.
However, this consistency also means IGL does not have the same low-base advantage as MGL.
MGL only needs to recover towards its normal historical addition rate to show a potentially large increase over the April-June base.
IGL, on the other hand, is already operating closer to its normal run-rate.
As a result, the percentage increase in additions required to generate a significant incremental benefit may be more challenging.
This does not mean IGL will not benefit.
It simply means that Nomura sees the relative upside as potentially greater for MGL.
Why Gujarat Gas could see a relatively smaller benefit
Gujarat Gas, referred to in the brokerage analysis as Gujarat Energy, is also expected to benefit from the policy.
However, Nomura sees a comparatively smaller advantage.
One reason is higher household gas consumption.
Gujarat Gas has annual consumption of around 131 scm per household, according to Nomura's estimates.
This is higher than MGL's approximately 108 scm per household.
Since the additional APM allocation is linked to every incremental active customer, a larger proportion of that gas would be required to meet the consumption needs of each household.
That could leave less excess APM gas compared with MGL.
The company's business mix is another factor.
Its gas trading business contributes around 36% of EBITDA, according to Nomura.
As a result, improvements in the core city gas distribution business could have a relatively lower impact on the company's overall earnings profile compared with a more focused CGD business.
The real competition could be for active customers
The new incentive could also change how city gas distributors approach customer acquisition.
The focus may shift away from simply announcing large numbers of new connections.
Instead, companies will have a stronger incentive to ensure that customers actually begin consuming gas and become billed or active users.
For investors, this means quarterly active-customer data could become increasingly important.
A company adding thousands of new pipeline connections but struggling to convert them into active customers may not receive the full benefit of the scheme.
MGL's ability to accelerate active household additions will therefore be a critical factor to watch after the policy takes effect on September 1.
What should investors watch after September 1?
The most important number will be the increase in billed and active PNG customers.
For MGL, investors will want to see whether household additions can recover from the April-June 2026 pace of around 9,700 per month towards its historical level of approximately 28,000 to 30,000.
A strong recovery could potentially strengthen the company's claim as the biggest beneficiary of the new APM allocation incentive.
For IGL, the focus will be on maintaining its already strong pace of additions while continuing to convert new connections into active customers.
For Gujarat Gas, investors will watch how much of the benefit ultimately translates into improved CGD profitability, considering its higher household consumption and diversified business mix.
Nomura summed up its view by stating that MGL may benefit the most because its low customer-addition base during April-June makes the threshold easier to surpass, potentially allowing it to record a larger increase in incremental connections during the September-December period.
Conclusion
The new APM gas incentive could significantly improve the economics of PNG expansion for India's city gas distributors.
By linking additional lower-cost gas allocation to incremental active customers, the policy could encourage companies to accelerate household additions and improve customer activation.
Nomura believes MGL is particularly well positioned.
Its recent household-addition rate has been significantly below its historical average, giving it a low base from which to recover. At the same time, its lower annual gas consumption per household could allow it to generate the highest excess APM allocation for each new active customer.
IGL remains well placed because of its strong and steady customer additions, while Gujarat Gas could also benefit but may see a relatively smaller impact because of higher household consumption and its broader business mix.
For investors, the story after September 1 will not simply be about new PNG connections.
The more important metric will be how many of those households actually become active, paying customers.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, opinions and analysis expressed are those of the respective brokerage firms and do not represent an investment recommendation. Investors should conduct their own independent due diligence and consult a SEBI-registered financial advisor before making any investment decisions.
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