Indraprastha Gas - Electric Dreams Threaten CNG Pickup: Motilal Oswal

Motilal Oswal Report

Led by Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India, higher launches by original equipment manufacturers and improving charging infrastructure, the penetration of electric vehicles has steadily improved to 12% in CY22 versus 8% in CY17 as percentage of new vehicle sales (excluding two wheelers) in Delhi, as per Parivahan data.

As Lithium prices have started cooling off sharply, we expect the penetration to pick-up even more going forward.

Compressed natural gas conversions were adversely impacted in the past few quarters, due to shrinking saving potential of CNG versus petrol/diesel.

As mentioned in our previous note, we expect sourcing cost to remain high for city gas distributions, thereby putting pressure on margin as well as conversions.

Additionally, the continued efforts by the Delhi government to increase the share of EVs to 25% by 2024 pose a serious risk to CNG volume growth potential in the region.

As Indraprastha Gas Ltd.’s management has stated, almost half of the incremental volume in the next two years is likely to come from industrial segment, which would not only pressure IGL’s Ebitda/standard cubic metre but also make it more volatile.

While the company has a strong volume growth potential in the near term, the long-term volume growth remains a challenge due to threat from electric vehicles.

Additionally, the loss of potential volumes from Faridabad and Gurugram geographical areas due to Petroleum and Natural Gas Regulatory Board’s recent order is also negative.

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