The Supreme Court (SC), continuing its push towards lower pollution levels in Delhi/NCR, has mandated Indraprastha Gas (IGL) to set up 104 additional CNG pumps in the region.
The Supreme Court (SC), continuing its push towards lower pollution levels in Delhi/NCR, has mandated Indraprastha Gas (IGL) to set up 104 additional CNG pumps in the region. This follows the move to reduce CNG prices by R1.5/kg during odd hours (i.e., 12 am to 5 am).
These moves are aimed at eliminating capacity constraints at a few high demand centres and also to ease heavy vehicle queues. We believe this will incentivise rapid conversion to CNG as well as boost demand for new CNG vehicles. Reiterate ‘buy’ with a target price of R574.
The flurry of policy mandates favouring CNG in Delhi had resulted in concerns as to whether IGL is equipped to meet the additional demand. Management stated that average pump capacity utilisation stands at ~33% versus maximum possible utilisation of 40-45% for smooth operations. A few high demand outlets are already operating at 50% plus (above maximum possible), while sites near Dwarka and Rohini are operating at 25% levels.
Recent measures that are aimed at reducing infrastructure bottlenecks include, SC mandate to set up additional 104 CNG pumps and happy hours.
In keeping with the mandate, IGL has already received proposals from ~150 fuel outlets belonging to oil marketing companies (OMCs) to set up CNG dispensing machines. Incremental investment is expected to be limited (~R20mn/outlet) and these new pumps can be serviced by mobile gas units. Management guided that the mandate for additional pumps can be executed in one year.
In the near term, we estimate a 3% dip in the company’s full year earnings.