remains a major growth driver for the growing demand for compressed natural gas (CNG) city gas distribution (CGD) companies. The favorable cost dynamics of CNG as compared to other auto fuels like petrol and diesel has led to a steady increase in the sales of CNG. Pollution concerns in Delhi NCR have also been a major reason for consumers to choose CNG and buy CNG vehicles.
For companies like Indraprastha Gas Limited (IGL), which has a major presence in Delhi-NCR (National Capital Region), CNG sales growth continues to be a major earnings driver.
While the outlook for the company remains good due to rising gas sales and geographic expansion, the growing penetration of electric vehicles (EVs) will have to be monitored. Rising EV sales and the government’s efforts to promote clean transportation to control pollution threaten the growth in CNG sales.
According to reports, concerns have deepened with aggregators in Delhi likely to be provided with an aggressive timeline for transition to CNG. Analysts say aggregators account for 30-40 per cent of IGL’s total CNG sales. A recent draft policy warrants cab aggregators and delivery services to ensure that 5% (four wheelers) and 10% (two wheelers) of all their new purchases are electric vehicles by March 2022.
While the draft policy will remain open for public comments and aggressive timelines for aggregators may also be eased slightly, the emphasis on clean energy use and increased EV penetration and sales will pose challenges for the growth of gas companies.
Analysts at Motilal Oswal Financial Services Ltd (MoFSL) said, “In the near term, IGL’s earnings may not be impacted, concerns remain on demand rate of 6% terminal growth implied by current market prices.”
The brokerage said the onslaught of EVs in China has resulted in a 3-11% CAGR (compound annual growth rate) decline in CNG and LNG sales for the two major Chinese CGD companies over the past five years.
Therefore, investors will keep an eye on the medium to long term prospects of IGL. Indraprastha Gas stock prices have declined nearly 25% from the 52-week high seen in September 2021. Gas prices have been on an upward trend, adding to higher input cost pressures, and this continues to be a reason for the correction. The threat posed by Omicron’s proliferation has also raised concerns over near-term sales growth.
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