Mumbai: Mumbai-based city gas distribution company Mahanagar Gas (MGL) may face some challenges thanks to the government's push to make electric vehicles (EVs) affordable for consumers.
The Union Budget on 5 July proposed to cut the goods and services tax (GST) on EVs from the current 12% to 5% by recommending it to the GST Council. In addition, an income-tax deduction of up to ₹1.5 lakh can be availed on the interest paid on loans taken for EVs. The move is expected to save tax of around ₹2.5 lakh over a five-year loan period for taxpayers. The Budget also reduced Customs duty on parts exclusively used for EVs like e-drive assembly, on-board charger, e-compressor, and charging gun to zero.
In addition to making EVs attractive, the ending of MGL's marketing exclusivity could make it vulnerable to the entry of new players in Mumbai and Thane where its marketing exclusivity has ended. MGL's marketing exclusivity will end in Raigad district in the next year.
The PNGRB has floated a concept paper on its website related to tariffs a third-party or a new entrant would pay the incumbent for using its network and infrastructure after its marketing exclusivity ends.
City gas distribution or CGD refers to transportation or distribution of natural gas to consumers in domestic, commercial or industrial and transport sectors through a network of pipelines. This business has, over the last decade, attracted several companies to lay a network of gas pipelines.
Additionally, Mumbai's state transport service, BEST has finalised plans to add 400 new air-conditioned mini buses to its fleet. However, its focus is on EVs.
"Out of proposed addition of 1,500 buses, 500 buses would be CNG-driven and will increase CNG sales by a mere 1.5%. Thus the volume is likely to grow by 3% in FY20E below MGL’s guidance of 6%," said Reliance Securities in a note released on 12 July.
Mahanagar Gas sells compressed natural gas (CNG) to automobiles and piped natural gas (PNG) to households and industries in and around Mumbai. Founded in 1995, it sells CNG to over 600,000 vehicles and PNG to over 1 million households. It runs more than 220 CNG retail outlets.
"We envisage fall in EBITDA margin with limited growth potential, going forward," added Reliance Securities.
Besides, in the piped natural gas (household) segment, the government has reduced the prices of subsidised LPG cylinders by ₹3 per cylinder, which makes a PNG household connection 4% dearer than an LPG cylinder.