Indraprastha Gas Management Discussions

Global Energy perspective

The year 2022-23 witnessed unprecedented events. The geopolitical situation brought about by the war in Ukraine led to significant distortions in the global supply chain and spike in global LNG prices. The global economy grew by around

3.5% in 2022, and energy investments in 2022 exceeded the previous years investments by about 8%.

For sustained economic growth the world needs energy as crucial input. The continuing dependence on fossil fuels will enhance carbon emissions and this goes against the humanitys goal of reducing carbon emissions. For the requirement of reducing carbon emissions gas is increasingly seen as the fuel of transition for the coming decade. Global carbon dioxide CO2 emissions registered a growth of around

1.0% in 2022 as compared to growth of 6.0% in 2021.

Natural gas is in a sweet spot and has the potential to meet the growing demand for clean, affordable energy with limited deployment of capital and significant impact on emissions.

As per BP Statistical review, the global Natural Gas consumption for the last 5 years is as under:

Year 2018 2019 2020 2021 2022
Consumption 3,837 3,903 3,822 4,038 3,913
(in bcm)

It can be seen that Natural Gas consumption registered a CAGR of about 0.4% only during last five years, primarily due to two major events i.e. COVID and Russia-Ukraine War. In year 2022, it has almost touched pre-covid levels. Going forward, the world gas consumption is expected to grow at a faster pace.

Indian Natural Gas industry

As per Indian Economic Survey 2022-23, the Indian economy is expected to register a GDP of around 6.5% in the year


Today, Natural gas is one of the cleanest fossil fuel available in India, and currently accounts for around 6.7% Indias primary energy mix. The government plans to develop a gas-based economy in the country, and is targeting to raise the share of natural gas in the energy mix to 15% by 2030. The demand growth is essentially expected from the transport, residential and energy sectors.

The sector-wise consumption of Natural Gas over the past 5 years is as below:

Figure 1: Sector-wise natural gas consumption in India (in %age)

Sector 2018- 2019- 2020- 2021- 2022-
19 20 21 22 23
Fertilizer: 27.83 28.52 31.70 30.37 33.05
City Gas 17.09 19.26 16.40 20.37 20.49
Power: 22.29 19.61 19.30 15.00 13.89
Refinery: 13.08 13.78 14.10 8.92 6.66
Petrochemicals: 6.28 6.31 5.50 4.63 3.34
Others: 13.43 12.52 13 20.71 22.57

From the above table it can be seen that while fertilizer remains the main consumer of natural gas, the CGD sector has now overtaken the Power sector to become the second biggest consumer of gas. Today, around 56.10% of Indias gas consumption is met from domestic production, while the remainder is met through imports. India is presently the fourth largest importer of LNG in the world behind China, Japan and South Korea. Indias total natural gas consumption during FY 2022-23 was around 59.97 billion cubic meters, of which 43.90% was met through imported liquefied natural gas (LNG).

The government has been working to strengthen the gas industry. It has taken steps to boost domestic consumption by building pipeline infrastructure across the country and to increase the imports by increasing the capacity of LNG terminals. These measures, together with the launch of the

Gas Exchange and the expected revision of transportation tariff policy, are expected to boost industry growth and transform India into a vibrant gas market.

Some of the initiatives taken by the Government of India in the Gas space include –

Expanding the National Gas Grid to about 36,000 Km from current 23,000 Km.

• The Petroleum and Natural Gas Regulatory Board (PNGRB) has authorised a 35,379 km Natural Gas Pipeline Network across the country in order to create a national gas grid and increase natural gas availability.

• The government has plans to build around 5,000 Compressed Biogas Plants (CBG) under the Sustainable Alternative Towards Affordable Transportation (SATAT) program.

• Under the automatic route, 100% FDI in petroleum and natural gas exploration is permitted. PSUs may invest

49 percent of their profits in petroleum refining without disinvestment or dilution of domestic equity in existing


City Gas Distribution Sector in India

City Gas Distribution (CGD) deals with transportation or distribution of natural gas to consumers in the domestic, commercial, or industrial, and transportation sectors. Over the last decade, this industry has attracted several companies to lay a network of gas pipelines. The sector has grown in recent years, thanks to the authorisation of the CGD network in various parts of the country.

CGD networks are being expanded and after the 11th round of CGD, 98% of Indian population and 88% of the geographical areas will be covered. The investment in the CGD bidding rounds is expected to be almost Rs. 1.20 lakh crore.

City Gas Distribution - Coverage of population of India and its Area

CGD Authorizations

Geographical Areas (GAs)

% Population of India

%Area of India

Standalone Cumulative Standalone Cumulative Standalone Cumulative
Pre-PNGRB 30 30 9.28 9.28 2.95 2.95
Round 1 (Oct ‘08) 6 36 0.33 9.61 0.03 2.98
Round 2 (Feb ‘09) 3 39 0.23 9.84 0.03 3.01
Round 3 (Jul ‘10) 6 45 0.77 10.61 1.21 4.22
Round 4 (Sept ‘13) 9 54 2.27 12.88 1.29 5.51
Round 5 (Jan ‘15) 8 62 2.04 14.92 1.82 7.33
Round 6 (Oct ‘15) 17 79 2.07 16.99 2.02 9.35
Round 7 (Jun ‘16) 1 80 0.36 17.35 0.46 9.81
Round 8 (Nov ‘16) 6 86 0.94 18.29 0.57 10.38
Sec. 42 (Mar ‘18) 6 92 1.57 19.86 0.61 10.99
Round 9 (Apr ‘18) 86 178 26.38 46.24 23.82 34.81
Round 10 (Nov ‘18) 50 228 24.23 70.47 17.92 52.73
Round 11 (Mar21) 71 299 27.63 98.10 35.37 88.10

CGD networks expanded tenfold from 66 districts in 2014 to 630 districts in 2023, resulting in a significant increase in domestic PNG connections from 25.40 lakh to 103.93 lakh during 2023.

Recommendations by the Kirit Parikh committee

According to the proposals presented by the Parikh panel, a floor price of USD 4/mmBtu (million British thermal units) and a ceiling price of USD 6.5/mmBtu (million British thermal units) were prescribed for domestic gas, with an annual incremental rise of USD 0.5/mmBtu (million British thermal units). Moreover, the panel recommended the implementation of gas price deregulation by January 1, 2027, within the next four years, involving the removal of both the floor and ceiling prices.

In addition, the committee suggested that the prevailing prices of domestic gas should be linked to a 10% gradient of crude oil prices. For High-Pressure High-Temperature (HPHT) gas, the committee proposed the removal of the price ceiling by January 2026.

Government has accepted the recommendations of Kirit Parikh committee and the same has been implemented. This would bring stability in gas pricing for CGD Sector.

Government Enablers

• PNGRB has allowed any entity to establish and operate LNG Stations in any GA or anywhere else in the country for dispensing LNG in liquid state, only to the transport sector. This will promote usage of LNG in long haul transportation and help reduce fuel emissions by increasing the share of LNG in Indias energy mix.

• PNGRB has authorised about 300 GAs for the development of CGD Networks in the country in order to increase coverage of CGD Networks in the country.

• Public Utility status has been granted to CGD Projects by Ministry of Labour and Employment. Different state governments have undertaken a number of policy and administrative initiatives to increase the usage of natural gas.

Company Overview

Founded in 1998, Indraprastha Gas Limited (IGL) is a leading City Gas Distribution company in India. The Company is a joint venture between GAIL (India) Limited and Bharat Petroleum Corporation Limited (BPCL). IGL is dedicated to providing safe and uninterrupted gas supply to transport, domestic, commercial and industrial consumers through its extensive distribution network.

IGLs operations cover various regions, including the NCT of Delhi, Noida, Greater Noida, Ghaziabad and Hapur,

Gurugram, Meerut (except the already authorised area), Shamli, Muzaffarnagar, Karnal, Rewari, Kanpur (except the already authorised area), Hamirpur and Fatehpur districts, Kaithal, Ajmer, Pali, Rajsamand, Banda, Chitrakoot and Mahoba districts.

With a focus on ensuring a reliable and secure gas supply, IGL has emerged as a prominent player in the CGD sector, catering to the energy needs of diverse consumer segments. Its strategic partnership with GAIL and BPCL further bolsters its market position as well as enables it to expand its operations and enhance its services.

As a pioneer in the CGD domain, IGL continues to contribute significantly to Indias energy landscape, promoting the adoption of natural gas as a clean and sustainable energy source. With a sharp focus on innovation, customer satisfaction and environmental sustainability, IGL remains at the forefront of the nations journey towards energy diversification and a greener future.

The Company has two associate companies operating as CGD companies.

• Central UP Gas Limited (CUGL)

• Maharashtra Natural Gas Limited (MNGL)

Strength of the Company

1. Strong parent companies - IGL has established a robust market presence and is a leading player in the City Gas Distribution (CGD) industry, serving diverse customer segments. The Promoter Companies of IGL are GAIL & BPCL which are Maharatna Companies.

2. Established presence - Operating in strategic locations such as Delhi-NCR, IGL benefits from a dense population and industrial presence, ensuring a steady demand for its products and services.

3. Sound Infrastructure - The Company has invested significantly in a well-developed and reliable infrastructure, including a widespread pipeline network and state-of-the-art CNG stations.

Performance Analysis of IGL during FY23

Financial Performance

• Gross turnover increased from Rs. 8442.83 Crores in the year 2021-22 to Rs. 15542.67 Crores in the year 2022-23.

Profit after tax (PAT) increased from Rs. 1314.95

Crores in the year 2021-22 to Rs. 1445.02 Crores in the year 2022-23.

• Earnings per share of the Company showed increase of 9.85% from Rs. 18.79 in year 2021-22 to Rs. 20.64 in year 2022-23.

• Net worth of the Company as on 31st March 2023 was Rs. 7086.56 Crores as compared to Rs. 6936.15 Crores as on 31st March 2022.

• As on 31st March 2023, IGL is a zero debt Company.

Ratio Analysis

Particulars For the year For the year
31 March 2023 31 March 2022
Debtors turnover ratio 21.92 21.72
Inventory turnover ratio 1,094.43 839.75
Current ratio 1.00 1.21
Operating margin % 10.74% 18.43%
Net profit margin % 9.26% 15.50%
Return on net worth % 20.39% 18.96%

Previous years figures have been restated in line with the current year figures.

Segment Wise Performance

The Company has its presence in following segments:

Compressed Natural Gas (CNG) - IGLs majority of the revenue accrues from CNG sales which has increased to 2209 mmscm this year from 1847 mmscm in the previous year showing an increase of 19.60%. The Company had 792 stations as on 31st March 2023, through which it provided gas to around 17 lakh vehicles.

Piped Natural Gas (PNG) - The Company has recorded PNG sales volume of 743 mmscm in the year 2022-23 as against 704 mmscm during the year 2021-22 resulting in an increment of 5.55% in volumes. IGL provided 3.10 lacs new PNG connections during the year 2022-23. As on 31st March 2023, total PNG connections provided stood at 23.70 Lakh households and 9021 Commercial

& Industrial consumers. The Companys pipeline infrastructure expanded from 18,811 kms in the year

2021-22 to 22,500 kms in the year 2022-23.

Current Sales Volume Mix

Despite the surge in gas pricing, IGL has exhibited strong growth of 16% in terms of volume on a yearly basis. The Company achieved its highest-ever sales volume of 2,952 mmscm, equivalent to 8.09 mmscmd per day, during FY 2022-23.


1. Increasing demand of CNG based vehicles - Rising fuel costs have made CNG an economical and cleaner alternative.

2. Governments initiatives - Government is increasingly promoting use of clean and efficient fuels like CNG and PNG. This is resulting in more investments in the sector.

3. Benefits of cost – Vehicle conversion to CNG mode is likely to increase because CNG is more cost effective than other liquid fossil fuels such as petrol and diesel.

4. Urbanisation – Rapid urbanisation and governments initiative to build smart cities would push the demand for greener fuel, which would in turn increase the growth prospects of the Company.

Threats, Risk & Concerns and Mitigations

Threats, risk and mitigation

1. Regulatory risks - The City Gas Distribution is governed by a regulatory framework overseen by the Petroleum

& Natural Gas Regulatory Board (PNGRB). The PNGRB had granted the CGD players exclusive marketing rights in the respective geographical areas for a set period of time. It has issued new guidelines in November 2020 for determining CGD network tariffs and allowing third-party access to existing CGD players infrastructure networks for natural gas supply after the marketing exclusivity period expired. When such regulatory changes are implemented, it is possible that competitors will enter the existing GAs and try to supply gas to certain customers.

Your Company has already established the CGD infrastructure across all parts of NCT of Delhi. This would be a major challenge for any new entrant in the prevailing scenario.

2. Macro-economic factors - Various macro-economic factors like pandemic and conflict between countries have resulted in supply chain disruptions, driving up the price of CNG. The surge in the price of CNG can affect Companys financials.

However, the Company has a strong financial position and credit rating which will help the Company to mitigate this risk. Healthy profitability, strong cash flow from operations, zero debt, and comfortable working capital position helps the Company to maintain its financial position.

3. Rising trend of electric vehicles- With the government introducing various incentive schemes, the popularity of electric vehicles has grown in India. These vehicles may pose a threat to CNG fuelled vehicles in the medium to long term.

The Company is preparing itself for meeting the challenge by becoming a part of value chain in electric mobility business and setting up of EV charging facilities at its CNG stations. The Company has already installed and commissioned 4 fixed EV charging stations in NCT of

Delhi and has also rolled out its battery swapping facility for 2 Wheeler and 3 Wheeler segment.

4. Fire & Safety Risk - The Company is in the gas distribution business, so fire and safety are top priorities. The Company prioritises this area and has established robust systems and procedures to mitigate risk.

5. Unavailability & Price of Natural Gas - Domestic natural gas is in limited supply. Very high Natural Gas prices across the world have been a matter of concern for last many months. City Gas business has been facing tough times with CNG prices inching closer to petrol and diesel prices.

As an organization committed to maintaining sustainable growth, despite pressure of high input gas cost, we have ensured that there is enough arbitrage for CNG compared to alternate fuels. Looking at the Governments increasing investment in greener energy sources, it is expected that the Company would continue to get the supply at affordable rates.

Internal Control

The Company has adequate internal control procedures commensurate with the size and nature of its business. For the FY 2022-23, M/s Singhi & Co., Chartered Accountants and in-house audit team carried out internal audits and the internal audit reports prepared by them were placed before the Audit Committee.

Human Resource

The Company places highest value on its employees because their hard work and efforts contribute to the Companys growth. IGL provides employees with training at all levels. IGLs employee strength as of 31st March 2023 is 687 employees. Employee strength is expected to grow further as the company expands. The Company implements a variety of initiatives to align employees personal goals with the Companys goals.

Environmental consciousness

Natural gas is an environmentally friendly fuel that is emerging as a future fuel. The government is making an effort to increase its share of the countrys total energy basket. The company is constantly working to promote its wider use among all types of prospective customers. To accomplish this, all users must be made aware of the economic and environmental benefits of natural gas over other fuels. To reduce pollution in Delhi and its surrounding areas, the Company promotes the use of natural gas as a fuel.

Cautionary statement

The Statement in this Management Discussion and Analysis Report describing the Companys objectives, projections, estimates, expectations or predictions may be ‘forward looking statements within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Companys operations include demand-supply conditions, changes in government and international regulations, tax regimes, economic developments within and outside India and other factors such as litigation and labour relations.