Nomura says Delhi EV policy structurally negative for IGL; prefers MGL

Nomura said that city gas distribution companies may now need to start to aggressively pursue inorganic opportunities to grow volumes, given the risk of pollution-led CNG mandates in large cities.

Nomura has said that the Delhi government's new 'EV Policy 2026-30' poses a long-term risk to city gas distribution (CGD), particularly Indraprastha Gas Ltd (IGL). 

 

According to Nomura, the policy, approved by the Delhi Cabinet on June 29 and effective from July 1, marks a shift from an incentive-led approach to a mandate-driven EV adoption strategy. It believes that CGDs may now need to start to aggressively pursue inorganic opportunities to grow volumes, given the risk of pollution-led CNG mandates in large cities.

 

The new policy proposes that 30 per cent of all school buses in Delhi be converted to electric by March 2030 as the government seeks to transform the national capital into a pollution-free city through zero-emission transport. Starting January 1, 2027, only new electric (no petrol/diesel/CNG/hybrid) auto-rickshaws and N1 vehicles (small goods carriers) will be registered in Delhi. From April 1, 2028, only new electric two-wheelers (no petrol/CNG) will be eligible for registration.

 

As per the policy, around 30,000 EV charging points will be set up across the city to expand charging infrastructure, and the government has committed over ₹7,000 crore over the next four years to drive this transition.

 

"Compared with the earlier 2020 EV policy, the new 2026 EV policy is more comprehensive with strict deadlines for EV-only new vehicle registrations, rather than only an incentive-led push earlier," the brokerage said.

 

Nomura said that the EV policy is structurally negative for IGL, as CNG cars and taxis account for nearly 65 per cent of its CNG volumes. It said that while CNG 3-wheelers sales have been on a structural downtrend due to faster EV adoption, the more significant risk is the car segment.

 

"Near-term earnings impact appears limited given the existing fleet of vehicles, but new vehicle addition rates should structurally decelerate in Delhi from FY27F onwards," Nomura said.

 

The PNG domestic and industrial/commercial segments are unaffected and remain growth levers, the brokerage said, while maintaining its 'Buy' rating with a target price of ₹165.

 

It added that IGL's future volume growth would increasingly depend on expansion into new geographies, PNG household additions and LNG diversification, though all these generate lower margins than CNG. 

 

On Mahanagar Gas (MGL), the brokerage said that it is unlikely to face any immediate impact as it operates predominantly in Maharashtra. However, if Maharashtra follows Delhi's precedent, we think MGL might face a similar terminal risk in the future. 

 

Nomura said that it prefers MGL among city gas distributors due to its faster volume growth profile, and lower EV mandate risk in the near to medium term. The brokerage has maintained its 'Buy' rating on MGL with a target of ₹1,142.

 

For Gujarat Gas, the brokerage said that its volume mix is dominated by industrial and commercial PNG; auto-CNG is a small share of its portfolio. Therefore, if a similar policy is implemented in Gujarat, it may impact Gujarat Gas the least among its CGD peers. The brokerage has reiterated its 'Buy' with a target of ₹335.  ============================================ 

Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.