MOSL: OIL & GAS (THEMATIC)-Expanding horizons-Green corridors, BS-VI, and new cities to drive growth

​OIL & GAS (THEMATIC): Expanding horizons; Green corridors, BS-VI, and new cities to drive growth

• The first wave of volume growth came in when the government granted top priority to city gas distribution companies (CGDs) for allocation of cheaper domestic gas in 2014. The second wave came with increased emphasis on cutting vehicular pollution through restrictions on diesel vehicles and plying of vehicles with odd/even registration plates on alternate days.
  
• We believe that green corridors, intercity travel, inorganic growth through new areas, and residential usage would drive growth of CGDs, going forward. With the implementation of BS-VI emission norms, economics would be even more against diesel usage and would aid volume growth for IGL, MAHGL and GUJGA.
  
• Global peers trade at 10.5x FY19E EV/EBITDA and 17.3x FY19E P/E, while Indian CGDs trade at 13.5x FY19E EV/EBITDA and 24.4x FY19E P/E. Indian CGDs remain in a sweet spot considering increased emphasis on usage of gas, firm supply of cheaper domestic gas, and penetration of gas in newer geographies driving usage of CNG for intercity travel.
  

Growing gas network to aid intercity travel on gas

• Growing access to CNG infrastructure is expected to boost consumption through intercity transportation/travel. With nearby areas like Jaipur, Chandigarh and Haridwar getting access to CNG infrastructure, Indraprastha Gas (IGL) is likely to witness increased gas sales for intercity travel.
  
• Mahanagar Gas (MAHGL) and Maharashtra Natural Gas (MNGL) have opened CNG outlets at the farthest ends of their territory on Mumbai-Pune Expressway. This should encourage travel on CNG between Mumbai and Pune.
  
• Though nuances of the policy on green corridors have not yet been clarified, we believe that as and when these are implemented, a new demand area of 3.2mmscmd (or ~30% of total CNG consumption in FY17) will be created.