India's biggest city gas stock plummets over 12%: Here's why
Indraprastha Gas Ltd. (IGL), India's biggest city gas distributor by revenue, saw its shares plummet over 12% after Delhi announced a new policy on electric vehicles (EV). Jefferies, a brokerage firm, downgraded IGL's stock to a "hold" rating, setting a target price of Rs. 465. The downgrade was prompted by the Delhi government's submission of an EV policy designed to promote the adoption of electric vehicles. This decline represents IGL's worst trading day in over three years.
Delhi's EV policy poses risk to IGL's sales volume
Delhi makes up 88% of IGL's total volumes. Jefferies analysts Bhaskar Chakraborty and Niraj Todi believe the new EV policy could put about a third of it at risk. The policy, which is still awaiting final approval, calls for a phased conversion of all commercial vehicles, including cabs and delivery vehicles, by 2030. This could potentially impact 30% of IGL's overall sales volumes starting from FY25.
IGL management responds to concerns
Addressing concerns about the EV policy's effect on gas sales, Indraprastha Gas Managing Director Kamal Kishore Chatiwal said the impact is "over-hyped" and that fuel demand will continue to grow due to increased passenger and commercial vehicle sales. Chatiwal also pointed out that regulations requiring large diesel-fired power backup generators to switch to gas will boost demand for their product.
Uncertainty remains as policy awaits approval
Although the EV policy may pose a "longer-term overhang" for IGL, Citigroup Inc. has maintained its buy recommendation on the stock. Citigroup analysts Saurabh Handa and Prerna Goenka noted that there is still uncertainty regarding the policy's timeline to become legislation, as it requires certain approvals before taking effect. This uncertainty may continue to influence IGL's stock performance in the near future. At the time of writing, IGL's stock traded at Rs. 402.95 apiece, down 11.95%.
