City Gas Distribution (CGD) companies, including Indraprastha Gas (IGL) and Mahanagar Gas (MGL), experienced a significant drop in their stock values, with IGL falling by 10 percent in Friday’s intra-day trade. The decline follows the Delhi government’s submission of an electric vehicle (EV) adoption policy for cab aggregators, delivery service providers, and e-commerce entities for final approval by the Lieutenant Governor.
Challenges for City Gas Distributors
IGL and MGL, prominent players in the CGD sector, faced the brunt of the stock market’s reaction. IGL shares plummeted to Rs 411.75, their lowest level since April 2023, amidst heavy trading volumes, which saw a three-fold increase. In the past two trading days, IGL’s stock has witnessed a 14 percent drop.
IGL, with its exclusive position in the supply of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) to various sectors in Delhi and neighboring regions, relies heavily on the transport sector’s demand for CNG. The new policy, which necessitates the transition to electric vehicles for cab aggregators and related entities, poses a challenge to IGL’s core business.
Impact on IGL’s Volumes
The policy mandates a gradual shift toward EVs, with new purchases requiring a 50 percent share of EVs within three years and full adoption within five years from the date of notification. By April 1, 2030, all aggregators must operate an all-EV fleet. Analysts at Jefferies noted that this policy could potentially affect approximately 30 percent of IGL’s overall volumes, starting from the fiscal year 2025.
Jefferies’ Projections
Jefferies, a global financial services company, has revised IGL’s volume growth estimate to 3 percent, 6 percent, and 6 percent for the fiscal years 2024-2026. They have also adjusted IGL’s earnings estimates, stating that they are now 8 percent and 15 percent below the consensus for fiscal years 2025 and 2026, respectively.
The potential threat posed by the growing adoption of EVs has led Jefferies to lower IGL’s forward Price-to-Earnings (PE) multiple to 16x. They’ve downgraded IGL to a “Hold” recommendation with a price target of Rs 465.
MGL Faces Similar Challenges
Meanwhile, Mahanagar Gas (MGL) also saw a 7 percent drop in its stock price to Rs 1,040 on the BSE. Although MGL reached a record high on October 17, 2023, the shift towards EVs poses a challenge to its predominantly CNG-driven business, which currently contributes 70-75 percent of its revenues.
As the Delhi government pushes for EV adoption in the transportation sector, CGD companies like IGL and MGL must adapt to changing market dynamics and emerging trends in sustainable energy.
