For Indraprastha Gas, surge in EV sales in Delhi NCR pose challenge
Premium- Rising sales of EVs and the government's efforts on promoting clean transport to control pollution pose a threat to the growth of CNG sales
Rising demand for compressed natural gas (CNG) has remained a key growth driver for city gas distribution (CGD) companies. Favourable cost dynamics of CNG compared to other auto fuels such as petrol and diesel have led to regular growth in CNG sales. Pollution concerns in Delhi NCR have also been key reasons for consumers opting for CNG and purchasing CNG vehicles.
For companies such as Indraprastha Gas Ltd (IGL), having a dominant presence in the Delhi-NCR (National Capital region), CNG sales growth has remained a key earnings driver.
Though the outlook still remains good for the company led by rising gas sales and geographical expansions, increasing penetration of electric vehicles (EV) has to be watched out for. Rising sales of EVs and the government's efforts on promoting clean transport to control pollution pose threat to growth of CNG sales.
The concerns have deepened with aggressive timelines likely to be provided to aggregators in Delhi for transitioning to CNG, suggest reports. Aggregators account for 30-40% of total CNG sales for IGL, say analysts. A recent draft policy warrants cab aggregators and delivery services to ensure thtat 5% (four-wheeler) and 10% (two-wheeler) of all their new purchases are electric vehicles by March 2022.
While the draft policy will remain open for public comments and the aggressive timelines to aggregators may also be relaxed slightly, the push on clean energy usage and rise in EV penetration and sales will pose challenges to growth of the gas companies.
"In the near term, the earnings for IGL may not be impacted, concerns remain on the ask rate of 6% terminal growth implied by the current market prices," said analysts at Motilal Oswal Financial Services Ltd (MOFSL).
The onslaught of EVs in China had resulted in a decline of 3-11% CAGR (compound annual growth rate) in CNG and LNG sales over the past five years for two prominent Chinese CGD companies, the brokerage said.
MINT PREMIUM See All
Investors will therefore remain watchful on medium to longer term prospects of IGL. The stock prices of Indraprastha Gas have corrected almost 25% from 52- week highs seen in September 2022. Gas prices have been on an upward trajectory, leading to higher input cost pressures, and this remains one reason for correction. The threat posed by the spread of Omicron has also added to concerns over near-term volumes growth.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!