Expanding City Gas Distribution (CGD) Sector
The city gas distribution (CGD) sector in India is witnessing significant growth, with key companies such as Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) leading the way. Both companies are focusing on infrastructure development and technological innovations to meet the growing demand for compressed natural gas (CNG). The recent rise in their stock prices and optimistic future projections underline the potential for continued expansion of the sector.
Indraprastha Gas Limited (IGL): Stable Growth Path
Volume Growth and Future Projections
Indraprastha Gas Limited (IGL) is poised for a strong performance in the coming years. According to recent estimates from UBS, IGL’s volume growth, which is currently at 4% for FY24, is expected to grow to a compound annual growth rate (CAGR) of 8.2% between FY24 and FY27. Several key factors are driving this optimistic outlook for IGL: Geographic expansion: IGL is expanding its reach by entering new geographies. This geographic diversification is expected to significantly increase its customer base. Infrastructure development: Investments in CNG refueling stations and pipelines are expected to lay the necessary foundation for the company’s future growth. Mergers and acquisitions potential: While UBS has not factored mergers and acquisitions (M&A) activities into the current valuation, there is a possibility that future acquisitions could further expand IGL’s expansion and market share. Target price and stock performance UBS has revised the target price for IGL to ₹700, indicating an upside potential of 32%. Following this revision, IGL shares witnessed an immediate rise of 6.2%, rising to ₹562.75 per share. This rise reflects the market’s confidence in IGL’s growth path. Investors are closely tracking the company’s infrastructure development and new initiatives, which could further boost its share price. Mahanagar Gas Limited (MGL): Reaching New Heights Share Price Surge and UBS Upgrade Mahanagar Gas Limited (MGL) has also experienced a significant rise in its share price, rising 6.7% to ₹1,943 per share. UBS raised MGL’s target price from ₹1,600 to ₹2,400, implying an upside of 32%. The revised target comes after a series of positive developments within the company:
Higher volume growth expectations: UBS now expects MGL to deliver volume growth of 7% to 11% in the fiscal years between FY25 and FY27. This growth is driven primarily by the expansion of CNG infrastructure and increased use of CNG vehicles.
Strong EBITDA forecast: UBS has raised its earnings before interest, tax, depreciation and amortization (EBITDA) per standard cubic metre (scm) forecast for MGL by 6% to 11%, indicating enhanced profitability in the upcoming fiscal years.
Growth drivers and market conditions
MGL’s growth outlook is boosted by both organic expansion and strategic infrastructure developments. The company is set to benefit from an increase in CNG stations, a growing fleet of CNG vehicles and inorganic growth potential through M&A activities. UBS estimates, which do not yet take into account M&A prospects, suggest that even greater gains could be made in the future if MGL pursues acquisition opportunities.
CNG-Powered Two-Wheelers: A New Route to Growth
Launch of CNG Motorcycles
A notable development in the CGD sector is the recent launch of the world’s first CNG-powered motorcycle by Bajaj Auto. Announced in early July, this innovation could reshape the transportation landscape and create new growth opportunities for both IGL and MGL.
Bajaj Auto, a major player in the two-wheeler market, has begun production of CNG motorcycles with an initial production of 20,000 units per month. Production is primarily focused on the states of Maharashtra and Gujarat, with plans to expand distribution across India.
TVS Motors: CNG scooters on the horizon
Apart from motorcycles, CNG-powered scooters are also expected to hit the market, with TVS Motors planning to launch its first CNG scooter by the first half of 2025. The introduction of these vehicles presents a new growth segment for the CGD sector as demand for eco-friendly and cost-effective transportation options increases.
Long-term growth potential for the CGD sector
While the immediate impact on CNG volumes from two-wheelers may be moderate, the long-term potential is significant. As more CNG-powered motorcycles and scooters become available, there will be a corresponding increase in demand for CNG fuelling infrastructure. Over time, this trend could contribute meaningfully to the overall growth of the CGD sector, benefiting both IGL and MGL.
Capital Expenditure and Infrastructure Development
Mahanagar Gas Limited (MGL)
MGL has made significant progress in expanding its infrastructure. In Q1 FY25, the company recorded a capital expenditure of ₹2.5 billion, with plans to add over 50 new CNG stations during the fiscal year. Additionally, MGL’s subsidiary, Unison Enviro Private Limited (UEPL), will contribute to this growth by adding around 25 more stations. This expansion reflects MGL’s commitment to improving access to CNG in its operational areas.
Indraprastha Gas Limited (IGL)
Indraprastha Gas Limited (IGL) has also increased its capital expenditure plans for FY25, with investments estimated at ₹17-18 billion. In Q1 FY25, the company has already allocated ₹3 billion, up from ₹2 billion during the same period last year. IGL’s capital expenditure is focused on expanding its pipeline network and increasing the number of CNG refueling stations, positioning the company for long-term growth.
Future Outlook for IGL and MGL
Growth Opportunities and M&A Prospects
The future looks bright for both IGL and MGL, with strong growth prospects driven by infrastructure expansion and innovation. Both companies are expected to benefit from organic volume growth supported by rising adoption of CNG-powered vehicles. Additionally, potential mergers and acquisitions could provide further opportunities for market consolidation and enhanced growth.
Investor Confidence and Market Sentiment
The market’s confidence in IGL and MGL is evident from their recent stock performance and upward revisions in their target prices. With UBS predicting substantial growth potential for both companies, investors are likely to maintain a positive outlook on the sector. Continued investments in infrastructure and the introduction of CNG-powered two-wheelers further strengthen the long-term growth prospects for both firms.
FAQs
Why did MGL and IGL shares surge recently? UBS revised target prices for both MGL and IGL, highlighting strong growth prospects. This announcement led to a 6% increase in their share prices.
What is the projected growth for IGL?
UBS forecasts IGL’s volume growth to improve from 4% in FY24 to 8.2% CAGR between FY24 and FY27.
What is the future outlook for MGL?
The target price for MGL has been raised to ₹2,400, with 7-11% volume growth and strong profitability expected for FY25-27.
How will CNG motorcycles and scooters impact the market?
The launch of CNG-powered two-wheelers is expected to drive future demand for CNG, creating new growth opportunities in the CGD sector.
What are the capital expenditure plans for MGL and IGL? MGL plans to invest ₹2.5 billion to add over 50 new CNG stations in FY25, while IGL’s capital expenditure is estimated at ₹17-18 billion, focused on infrastructure expansion.
Conclusion
Indraprastha Gas Limited (IGL) and Mahanagar Gas Limited (MGL) are well positioned for future growth, driven by infrastructure expansion, innovation in CNG vehicles, and potential M&A activities. With strong market confidence and favorable projections, these companies are poised to benefit from the growing demand for clean energy sources, making them attractive long-term investment opportunities.
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