City gas distributors under pressure; IGL, MGL stocks tank up to 10%

The Delhi government has submitted a policy on electric vehicle (EV) adoption by cab aggregators, delivery service providers and E-comm entities for final approval by the Lieutenant Governor

Shares of City Gas Distribution (CGD) companies like Indraprastha Gas (IGL) and Mahanagar Gas (MGL) tanked up to 12 per cent on the BSE on Friday amid heavy volumes.

The EV policy, which was submitted by the Delhi government to the Lieutenant Governor, mandates a phase-wise conversion of all commercial vehicles, including cabs and delivery vehicles, by 2030.

Shares of IGL slipped 12 per cent to Rs 403, its lowest in this calendar year. The average trading volumes on the counter jumped nearly eight-fold on Friday. A combined 21.3 million equity shares changed hands at the NSE and BSE. In the past two trading days, the stock has tanked 16 per cent.

IGL enjoys exclusive position in the business of supplying CNG to the transport sector and piped natural gas (PNG) to the industrial, domestic and commercial customers in Delhi, along with Gautam Budh Nagar (Noida and Greater Noida) and Ghaziabad in Uttar Pradesh.

The company’s sales are predominantly driven by CNG, contributing to approximately 75 per cent of its total sales volume.

"This could potentially impact around 30 per cent of IGL's overall volumes starting FY25E. New geographical areas are unlikely to compensate for the slowdown in NCR that accounts for 88 per cent of IGL's volumes", analysts at Jefferies said.

The brokerage has lowered IGL's volume growth estimate to 3 per cent/6 per cent/6 per cent for FY24-26E.

“We have assumed unit Ebitda margins at the upper end of management guidance. We are now 8 per cent/15 per cent below consensus on FY25/26E PAT. We lower forward PE multiple to 16x to factor in growing EV threat and downgrade to Hold with price target Rs 465,” it said.

IGL has a strong track record in volume growth with margin outlook also improving post the administered price mechanism (APM) price cap and priority allocation of HPHT gas. IGL is also expanding into newer industrialised GAs that provide new growth opportunities. Rising EV risks on regulatory intervention in NCR caps volume upside, the brokerage said.

Meanwhile, shares of MGL too slipped 8 per cent at Rs 1,030 on the BSE. The stock had hit a 52-week high of Rs 1,152 on October 17, 2023.

MGL has established a firm presence in the Greater Mumbai gas distribution business, where it is the dominant player. Its growth is primarily driven by the CNG business, which contributes 70-75 per cent of its revenues at present.