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
2023-24.
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 |
| Distribution: |
|
|
|
|
|
| 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
PSUs.
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.
Opportunities
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.
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