Mahanagar Gas Ltd. can be an early beneficiary of Bajaj Auto Ltd.'s launch of the world's first compressed-natural-gas-powered motorcycle next month, according to Nuvama Research.
MGL is one of the largest city gas companies in India, with the CNG segment accounting for over 70% of its total sales volume in the last financial year. The company has over 23 years of experience in supplying natural gas in Mumbai, the adjoining areas as well as Raigad district, according to a note.
As Bajaj Auto's initial 20,000-per-month capacity is located in Maharashtra and even if half of its CNG motorcycles are initially sold in MGL's geographies due to the close proximity, the natural gas distribution company's CNG volumes can grow 2% by the next fiscal, Nuvama said.
Better Alternative To Two-Wheeler EVs
Nuvama said the current addressable motorcycle market is estimated to be 3.6 lakh units, which is 45% of the overall motorcycle market.
The CNG-powered motorcycles can potentially be a more attractive alternative for Indian consumers in the mobility sector. CNG is not only 56% more competitive to petrol in terms of price, but also can be a lucrative alternative to electric motorcycles, the brokerage said.
Currently, two-wheeler electric scooters seem viable, while a two-wheeler electric motorcycle does face issues in terms of structural inconveniences, lagging technologies and high costs, Nuvama said.
Potential Volume Uptick
Nuvama highlighted that 10,000 new CNG motorcycles launched in Maharashtra is equal to 3% of the total CNG two-wheeler addressable market. This can lead to an additional CNG volume of 0.6 million standard cubic metres per day, which is equal to 2% of its total CNG volumes.
The brokerage assumes an average CNG tank size of 3–4 kilogrammes and an average consumption of 1 kg per 80 kilometres. Based on this, each CNG motorcycle would require about 0.4 kg of CNG per day.
Base, Bear and Bull Case
Nuvama's base case assumes that 20% of the motorcycles in India's total addressable market would be CNG-powered by 2030. This will lead to a total incremental CNG volume of 0.16 mscmd, which is 6% of MGL's current CNG volume.
The brokerage's bull and bear case assumes CNG-powered motorcycles to account for 30% and 10% respectively of the addressable market by 2030. This could lead to a total incremental CNG demand for MGL at 0.28 mscmd and 0.07 mscmd respectively.
Company Guidance
MGL recently guided for a 6–7% volume growth in its fiscal 2024 concall. This growth was on the back of double-digit volume growth in the industrial and commercial segments, but did not consider prospects from the CNG motorcycles.
MGL is also seeing a pickup in its monthly CNG conversions, driven by a combination of stable and affordable CNG prices, as well as successful promotional campaigns of tie-ups with private and commercial vehicle original equipment manufacturers, Citi said after in its latest meeting with the management.
The company is seeing a healthy pickup in CNG conversions in the untapped commercial vehicle segment. The company's CNG station network has improved, with a total of 350 stations currently compared to 250 four years ago. It plans to add 50 more stations to its network in the fiscal, Citi said.
The company's recent acquisition of Unison Enviro is also set to add 1.1 mscmd of additional volume by 2030. This number is currently 29% of its current total volumes, it said.
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