Even as the Petroleum and Natural Gas Regulatory Board’s (PNGRB) most recent notification on open access has offered a brief-term respite to city gas distribution (CGD) players, the sector professionals really feel that competitors from other players will in the end weigh down on their profitability in the future.
In the notification, PNGRB has not permitted current compressed all-natural gas (CNG) outlets of state-run oil advertising and marketing corporations (OMCs) in CGD locations to sell the fuel by means of the open access route, implying that CNG sales volume of current CGD players like Indraprastha Gas IGL and Mahanagar Gas (MGL) will not reduce promptly. However, a section of the business noted that competitors is imminent and profitability would be challenged sooner or later.
Analysts at Jefferies had noted that restricting OMCs from promoting CNG beneath open access route will mitigate any damaging influence on current earnings of CGD corporations like IGL and MGL in the CNG segment. After the release of the notification on Friday, share costs of IGL enhanced 10.9% from a day-ago to Rs 496.3, when MGL shares enhanced 14.4% to Rs 1,063.2 in the exact same period. As considerably as 60% of IGL’s volumes and about 65% of MGL’s volumes are from CNG stations, which are on OMC websites. OMCs get a commission of Rs 3.7-4/kg and have currently demanded a 90-one hundred% rise in their commission retrospectively from the starting of FY19.
“CGD players boosting Ebitda margin by not passing on the full benefit of fall in domestic gas price and PNGRB not allowing OMCs to take over incumbent’s existing CNG stations on their site would hurt their case in Court,” analysts at ICICI Securities pointed, adding that “CGD players’ EBITDA margin, which has seen secular rise in last few years, is likely to come under pressure with the advent of competition,”
The improvement comes at a time when advertising and marketing exclusivity has currently expired in Delhi-Noida-Ghaziabad for IGL, Mumbai-Thane urban-Raigad for MGL. In its open access regulation, PNGRB has remarked that at least 20% of the CGD network and compression capacity would have to be created offered for open access to new entrants as per the regulations. Analysts noted that in locations exactly where advertising and marketing exclusivity is more than for incumbent CGD players, decks have been cleared for competitors as PNGRB is now most likely to permit competitors in these CGD locations 1 by 1.
A report by Motilal Oswal pointed advertising and marketing exclusivity has ended in about 40-45 geographical locations (GAs), and the proposed open access will be implemented in a phased manner, with the initially batch targeting only 6-8 GAs for pilot implementation. At present, the CGD network covers 232 GAs spread more than 407 districts in 27 states. OMCs have authorisation for 77 GAs and have indicated many occasions that they are keen to foray into huge-volume CGD locations like Delhi, Mumbai and Pune when the competitors is permitted.