Shares of City Gas Distribution (CGD) companies like Indraprastha Gas (IGL) and Mahanagar Gas (MGL) tanked up to 10 per cent on the BSE in Friday’s intra-day trade amid heavy volumes. 

The moves follow Delhi government submitting 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 IGL slipped 10 per cent to Rs 411.75, its lowest level since April 2023, on the back of heavy volumes. The average trading volumes on the counter jumped over three-fold today. A combined 9.1 million equity shares changed hands on the NSE and BSE.

In the past two trading days, the stock has tanked 14 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.

IGL, as the exclusive distributor of CNG and PNG within the National Capital Region of Delhi, the company’s sales are predominantly driven by CNG, contributing to approximately 75 per cent of its total sales volume.

The cab aggregator policy mandating transition to EV for cab aggregators, delivery service providers and E-comm entities has been put up for Lieutenant Governor’s approval by the Delhi Govt after consultations with various stakeholders.

The policy mandates phase-wise conversion of aggregators’ fleet with share of EV in new purchases rising to 50 per cent in 3 years and 100 per cent in 5 years, from the date of notification. The aggregators would also need to switch to an all-EV fleet by April 1, 2030.

“This could potentially impact around 30 per cent of IGL’s overall volumes starting FY25E. New geographical areas are unlikely to compensate for 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 mgmt guidance. We are now 8 per cent/15 per cent below consensus on FY25/26E PAT. We lower fwd 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 (High Pressure, High Temperature) gas. IGL is also expanding into newer industrialized GAs that provides new growth opportunities. Rising EV risks on regulatory intervention in NCR caps volume upside, the brokerage said.

Meanwhile, shares of MGL too slipped 7 per cent at Rs 1,040 on the BSE. The stock had hit a record high of Rs 1,151.85 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.

The company currently operates in three geographical areas (GAs) — GA1, which includes the Greater Mumbai region; GA2, which includes expansion areas, such as Mira-Bhayander, Thane-Vashi-Belapur (TVB), Kharghar-Panvel-Taloja (KPT), Kalyan-Dombivli-Ambernath, Ulhasnagar (KD& AB); and GA3, which is the Raigad district (won by the company in 2015).