Express news service
CHENNAI: Many people using gasoline and diesel vehicles have started to seriously consider switching to a cleaner, cheaper alternative such as compressed natural gas (CNG), but analysts are now expecting fuel prices to rise. domestic natural gas at the next scheduled price. revision in October. This is expected to put pressure on the profit margins of CNG suppliers such as Indraprastha Gas and Mahanagar Gas, and could also lead to higher retail prices.
A report by Motilal Oswal released on Monday said CNG companies are on the verge of their “toughest battle ever” because of the expected price hike. The problem for gas manufacturers is that the last few quarters have presented particularly favorable conditions which are now subject to change. As of April 2019, the price of domestic gas (the key raw material for CNG) has dropped from $ 4.1 per million British thermal units (mmBtu) to just 1.8 mmBtu currently. However, CNG companies have increased retail prices of CNG (in New Delhi) to Rs 43.4 per kg from Rs 37.9 per kg during the same period.
This translated into lucrative pricing equations and profit margins, with earnings before interest, taxes, depreciation and amortization (EBITDA) per standard cubic meter (scm) of CNG increasing over the period. IGL’s EBITDA / scm increased 44% to Rs 8 / scm while MGL saw it double to Rs 12 / scm during the same period.
However, the chairman and managing director of oil and gas producer ONGC, Subhash Kumar, told analysts on a call last week that domestic natural gas prices are expected to “increase by 50 to 60 percent for the period October. 2021-March 2022 “. Brokerages also expect an increase, with Emkay Global expecting a 58% increase to $ 2.8 per mmBtu and Motilal Oswal to $ 2.86.
Analysts expect this spike to be reflected in both CNG prices and margins for IGL and MGL. “For every $ 1 per mmBtu increase in the price of domestic gas, IGL and MGL must increase by Rs 4 per kg of CNG, excluding taxes,” Motilal Oswal warned, “Combined with the continued demand from WTO to increase commissions , both IGL and MAHGL seem to be looking at the toughest battle so far.
When contacted, IGL said it would not comment on future prices.