IGL looks beyond NCR to give a boost to revenue, bags six other areas

According to E S Ranganathan, MD of IGL, it is the price of gas and not the end of exclusivity that is the challenge.

Faced with the looming threat of loss of exclusivity in the National Capital Region (NCR), Indraprastha Gas (IGL) is looking to rake in revenue from gas distribution networks in other cities over the next five years. The firm says viability of tariff will be more crucial for its survival than the loss of exclusivity.

According to E S Ranganathan, managing director of IGL, it is the price of gas and not the end of exclusivity that is the challenge. “Our tariffs are fixed by the regulator, but there should be a fair return on investment.”

The NCR market has been the foundation of firm’s growth, though it has bagged six geographical areas outside this region for city gas distribution (CGD) through auctions conducted by the Petroleum and Natural Gas Regulatory Board. 

“This has increased our area of operation to 16 districts in three states of Uttar Pradesh, Haryana and Rajasthan. Their contribution to our growth will be visible in five years,” Ranganathan told Business Standard. “Beyond NCR, we have to seed the market and create awareness, since currently only areas surrounding NCR have awareness about gas use. We will have to develop commercial and industrial consumers,” he added.

According to a Moitlal Oswal Research report published Wednesday, assuming that the competition takes away 20 per cent of current sales volumes, as mandated in the PNGRB’s draft, it would result in 200-360-basis point reduction in return on equity of the CGD players. IGL’s marketing exclusivity expired in Delhi in 2012.

The company has planned for capital expenditure of Rs 1,100 crore in financial year 2019-20 (FY20), Rs 1,400 crore for FY21 and Rs 1,200 crore for FY22. 

Half of this capex would be outside NCR. In cities like Ajmer and adjoining areas, IGL aims to have 100,000 piped gas customers in eight years.

IGL currently has 1.24 million domestic, over 4,000 commercial, and 2,500 industrial consumers. The target is to reach 2 million domestic consumers in three years, and over 2.5 million in eight years. Compressed natural gas (CNG) currently contributes 75 per cent to the company’s revenue and this is likely to continue for another five years. “There is more than 10 per cent growth in the CNG business, which will continue since electric vehicles have not taken off in a big way,” he said.

Though electric charging is likely to disrupt the market for CNG, IGL plans to install charging points at all new CNG stations. IGL has a signed a memorandum of understanding with Tata Power, one of the two distribution companies in Delhi, for these charging points.

The CGD segment was expected to play a big role in the coming years, but Ranganathan said the pre-condition for natural gas to grow is to bring it within the goods service tax (GST) net. “Since consumers do not get GST input credit, use of gas becomes more expensive in comparison to coal and other industrial fuel. Even industrial LPG is in the GST.”