End Of Exclusivity For City Gas Firms ‘Poses No Threat’ And Only ‘Opportunity’, Says Citi Sai Aravindh NDTV Profit

Designation of a city gas distribution company’s areas as a common carrier does not pose a major threat to the larger compressed natural gas-focused incumbent, according to Citi Research.

The introduction of competition presents an opportunity for these companies to expand their geographic footprint, the brokerage said in a note on Feb. 19. This can either be through mergers and acquisitions or by entering the geographical areas of smaller players, it said.

The regulator last year issued a notice to Indian city gas distribution companies, which declared 73 networks as common carriers. The notice implied no exclusivity to existing operators and the open access could allow other entities to enter and provide CNG services in the named regions.

In recent days, both Indraprastha Gas Ltd. and Mahanagar Gas Ltd. have signaled a shift in their stance toward the regulator’s attempts at enforcing the end of marketing exclusivity.

Steps taken by the government, combined with rising cost pressures could, over time, lead to sector consolidation. This could provide merger and acquisition opportunities for larger companies, according to Citi. “Declaration of end of exclusivity by the regulator could also enable the likes of IGL and MGL to enter into geographical areas where the incumbents have failed to meet minimum work programme commitments.”

For any player looking to enter an existing market as a common carrier, the most attractive segments would be either CNG or industrial, Citi said. “The domestic PNG segment is capex intensive with lower volumes and margins, and therefore may not be as remunerative.”

Citi Research retained its ‘buy’ rating on Indraprastha Gas Ltd. and Mahanagar Gas and a ‘sell’ rating on Gujarat Gas Ltd.

Declaring networks as common carriers would lead to higher competition in the space and could reduce profits of the companies. However, higher competition could also lead to lower prices for consumers, and easier infrastructure access to other gas suppliers could lead to higher gas penetration in the country.

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