Rising demand for Compressed Natural Gas (CNG) continues to be a key growth driver for City Gas Distribution (CGD) companies. The low cost of CNG as compared to other auto fuels like petrol and diesel has also 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.
Growth in CNG sales continues to be a major source of earnings for companies like Indraprastha Gas Limited (IGL) in Delhi-NCR (National Capital Region).
Although the outlook for the company remains good due to rising gas sales and geographic expansion, it will have to keep an eye on the increasing penetration of electric vehicles (EVs). Growing EV sales and clean transportation to control pollution The government’s efforts to boost CNG have threatened growth in sales of CNG.
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 has asked cab aggregators and delivery services to ensure that by March 2022, 5% (four wheeler) and 10% (two-wheeler) segments of all their new purchases have electric vehicles. needed.
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While the draft policy will remain open for public comments and aggressive timelines for aggregators may be relaxed, the thrust on clean energy use and increased EV penetration and sales will pose challenges for gas companies to grow.
Analysts at Motilal Oswal Financial Services Limited (MOFSL) said, “In the near term, IGL’s earnings may not be impacted although concerns remain on demand rate of 6% terminal growth implied by current market prices.”
Hence, investors will keep an eye on IGL’s medium to long term investments. Indraprastha Gas stock has declined nearly 25% from its 52-week high of September 2022. Gas prices have been on an upward trend, adding to higher input cost pressures and this is a reason for the correction. The threat posed by Omicron’s spread has also raised concerns over volume growth in the near term.
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