Indraprastha Gas Ltd.'s tie-up with Container Corp. to boost liquefied natural gas as trucking fuel will benefit the city gas distributor when it faces a risk from electric vehicle transition in Delhi, its largest market, according to Morgan Stanley.
LNG trucking is a nascent market in India, unlike in China or the U.S., according to the international broking firm. While various stakeholders like fuel retailers and Petronet LNG Ltd. have been attempting to develop the ecosystem, there has been limited success to date, it said.
If successful, LNG trucking would provide a new demand growth area, which is not yet priced in by market, Morgan Stanley said. While Indraprastha does stand to benefit, oil retailers Bharat Petroleum Corp., Hindustan Petroleum Corp. and Indian Oil Corp. could be bigger beneficiaries, it said.
The brokerage currently maintains an 'underweight' rating on Indraprastha at a target price of Rs 432, according to a note.
Indraprastha Gas signed a memorandum of understanding for using LNG in trucks, which have 990-litre cryogenic gas tanks with a 1,400-kilometre mileage. The deal is an attempt to diversify from gas consumer base as EV adoption can hurt demand for the fuel.
MoU With Concor
Indraprastha's strategic partnership with Concor aims to replace diesel with LNG, which emit significantly lower levels of greenhouse gases compared to diesel.
Key Highlights:
Initially, both LNG and liquified compressed natural gas facilities shall be installed at Concor's terminal in Dadri, Uttar Pradesh.
Both the companies will also explore the possibility for transportation of LNG in future through railway rakes from LNG terminals near seaports like Dahej and Gujarat to desired locations within India.
Both entities will jointly examine the possibility of using LNG-fired engines in place of existing diesel fired engines in various terminals of Concor.
Based on the experience of the initially planned LNG facility at the Dadri terminal, the companies may replicate the same at other terminals in future and may be taken up progressively.
Stock Performance
Indraprastha's stock has fallen 20% fall since Oct. 17 after the new Delhi Electric Vehicle Policy targets to turn all vehicles electric beyond 2030.
While the company's management said the implementation of the policy would impact 14–15% CNG volumes, Jefferies Financial Group Inc. said 30% of Indraprastha's total volumes were at risk. The company expects muted growth from the cab-aggregator segments in the next three–five years.
Shares of Indraprastha were trading 0.77% higher at Rs 391.50 apiece compared to a 0.18% decline in the benchmark NSE Nifty 50 as of 12.20 p.m.
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