City gas distributor Indraprastha Gas Ltd (IGL) should sail through this financial year, but it is the next one that looks tough in the face of the Delhi government’s push for faster transition to electric vehicles (EVs). IGL’s management has clung to its exit volume guidance of nine million metric standard cubic meters per day (mmscmd) for FY24. The current volumes are 8.5 mmscmd. The management did not give a target for FY25 as there was a lack of clarity on the impact of the proposed EV policy.
A few days ago, the Delhi government approved an EV transition policy for cab aggregators, delivery services, and e-commerce companies. Against this backdrop, IGL foresees a decline in the number of new compressed natural gas (CNG) vehicles being added by cab aggregators in the coming years, potentially hurting its sales growth over the next 2-5 years.
In the September quarter (Q2FY24), about 75% of IGL’s volumes were from the CNG business, which offers motorists an alternative to fuels such as petrol and diesel. Cab aggregators make up 15% of IGL’s CNG sales, private cars and autos represent 40% and 6%, respectively, while buses contribute 20%, and the remaining comes from taxis and light commercial vehicles. In terms of geography, Delhi makes up 60-65% of its CNG sales, and Gautam Buddh Nagar or Ghaziabad contributes 20-23%.
In Q2, IGL’s total volumes grew by a mere 3% year-on-year, hurt partly due to the impact of the G20 summit and flooding in the Delhi-NCR region. However, Ebitda per standard cubic meter was flat sequentially at ₹8.60, beating analysts’ estimates. Ebitda is earnings before interest, taxes, depreciation, and amortization.
Amid worries on volume growth, IGL’s shares have tanked 18% from the high of ₹487.45 apiece on 17 October. Some believe that it may take a while for the EV policy to make a significant dent.
“Even if the scheme is adopted as per the policy and is followed to the T, it will take at least 15 years for the entire volume to go away with any decline in volumes to be visible only after the fifth year,” said Antique Stock Broking in a report dated 3 November.
Nevertheless, the potential threat from the policy lingers and may act as an overhang for the stock.