The immediate target was the introduction of 1,000 electric buses in 2019. The next target is for electric buses to constitute 50% of DTC buses by 2023.
On March 2, the Delhi government approved the addition of 1k electric buses in 2019. This may have limited near-term impact as no government CNG buses had been added in the past
5-6 years in any case. However, if this first phase is successful and EVs gather the momentum to affect other segments (eg: private buses, auto rickshaws), this could affect IGL’s CNG volumes in the longer term.
Background: A draft version of the Delhi Electric vehicle policy, published on 27 Nov, 2018, aimed to set out a framework for the adoption of electric vehicles in public transport in Delhi. The immediate target was the introduction of 1,000 electric buses in 2019. The next target is for electric buses to constitute 50% of DTC buses by 2023.
CNG buses: Of the total 24k CNG buses in Delhi (as of Dec, 2018), 8k buses are DTC (govt). Hence, to achieve the target of 50% of DTC buses being electric by 2023, 9k electric buses will have to be added (assuming no CNG bus additions by the Delhi govt, excluding the 1k DTC CNG buses expected in 2019, which are already at the tender stage).
Subsidies: The Delhi government will provide a subsidy of up to `7.5 mn or 60% of the cost of the electric bus (whichever is lower). Along with power infrastructure, this could cost `8 bn, to be funded from the ECC fund, which currently has a corpus of `11 billion.
Near-term impact: We do not estimate any near-term -ve impact on IGL’s CNG volumes as DTC CNG buses had not contributed to IGL’s growth in the past 5-6 years in any case. In fact, FY20e could still see a spike, helped by the addition of 1,000 CNG buses (after a long gap) but not recurring given the track record of DTC CNG bus additions.
Long-term impact: And yet, if the implementation of the first phase of 1k electric buses in Delhi is successful, it could pave the way for the next wave of electric vehicle addition. Buses and auto-rickshaws contribute 40% of IGL’s CNG volumes (30% of total volumes). Impact on Ebitda/PAT could be even higher given CNG is more profitable.
Recommendation: We keep our Buy with a PT of `340, implying 24x FY20e P/E, given 13% volume CAGR FY18-23e (ex areas won in 10th round, where IGL needs to overcome execution challenges). But the key downside risk is any change in natural gas allocation policy and any major development in electric vehicles potentially affecting CNG volumes.