OPEN APP
Home >News >India >Expensive petrol, diesel to drive city gas sales volume this fiscal: Crisil

Expensive petrol, diesel to drive city gas sales volume this fiscal: Crisil

Last fiscal saw city gas volume contract 13% as both demand for CNG and industrial PNG, which together contribute 90% of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.Premium
Last fiscal saw city gas volume contract 13% as both demand for CNG and industrial PNG, which together contribute 90% of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.

  • According to Crisil Ratings, gas sales is set to soar 25-27% this fiscal, driven by rebounding vehicular mobility and industrial activity, and a record price advantage versus competing fuels such as petrol, diesel and furnace oil 

MUMBAI : Sales volume of city gas—comprising compressed natural gas, or CNG, used by vehicles, and piped natural gas (PNG) used by homes and industries—is set to soar 25-27% this fiscal, driven by rebounding vehicular mobility and industrial activity, and a record price advantage versus competing fuels such as petrol, diesel and furnace oil, according to Crisil Ratings.

Such strong growth will help city gas distributors sustain robust operating margins of 28%, even as higher prices of liquefied natural gas (LNG) get partly absorbed to cushion the impact on consumers. That, and strong balance sheets, will support stable credit profiles of distributors.

Last fiscal saw city gas volume contract 13% as both demand for CNG and industrial PNG, which together contribute 90% of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.

Manish Gupta, senior director, Crisil Ratings, said, “The first quarter of this fiscal, unlike last year, saw far less impact of lockdowns on vehicular mobility and industrial activities as volumes were up 130% on-year, though down 18% sequentially. We expect sustained recovery for the rest of the year, as both CNG and industrial PNG demand improve on a combination of higher economic activity and record price advantage against alternative fuels. This will drive overall demand by 25-27% this fiscal, even 8% above fiscal 2020 levels."

Sales volume of CNG, which accounts for about 40% of total consumption, will be driven by an expanding network of CNG stations (up from 2,500 in May 2020 to 3,180 in May 2021) and higher sale of factory-fitted CNG cars. Sales of CNG cars are expected to increase 50% to 260,000 units this fiscal given their lower total cost of ownership than competing petrol and diesel ones.

Demand for industrial PNG, which accounts for about 50% of total consumption, will benefit from improving competitiveness against crude-linked industrial fuels this fiscal, a select ban on sale of polluting fuels such as furnace oil and pet coke, an expanding pipeline network, and hassle-free use.

Residential PNG, which accounts for the balance 10% of consumption, too, will continue to grow steadily this fiscal with consumers shifting away from LPG to PNG due to its lower cost, increasing network and higher safety.

Importantly, the all-time-high price advantage of gas against alternative fuels will provide a fillip to volumes.

Naveen Vaidyanathan, associate director, Crisil Ratings, said, “Beginning this fiscal, successive price hike moves have increased petrol and diesel prices by 14-16%, with petrol prices over 100 per litre mark across the country."

Vaidyanathan added that CNG price, driven by the domestic administered pricing mechanism formula, is at an all-time low and is expected to be only 4-6% higher on-year. LNG prices have spiked, but still trail the rise in crude oil linked industrial fuel prices. This has resulted in a record price advantage of 61-69% for CNG versus petrol and diesel, and a 14-21% for PNG versus industrial fuels.

The increase in LNG means operators would absorb a part of the price increase. However, the higher volume will still support a stable operating margin of 28% this fiscal. Last fiscal, despite volume contraction, margin scaled to an all-time high of 28.5%, as companies benefited from multi-year low input gas prices, which were not fully passed on.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout