CNG business growth in India

CNG business survey

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*1. Natural gas market development is critical for India's future growth

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*2. Government support in domestic natural gas industry growth

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*3. Grid development in East India is key to India's natural gas market growth

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*4. Does high interest rate impact CNG business expansion? The only sustainable and most
profitable business in CGD across all segments is CNG only. All the CGD companies are
relying on this segment only as the domestic gas is also allocated for the segment.

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*5. Does long payback period impact CNG expansion? Payback period is not much in case of
CNG (~1-2 years approx.) due the demand of CNG in vehicles and cheaper domestic gas
allocation.

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*6. Difficulty in procuring funds from local financial institutions is an issue for CNG companies.
Once the Financial Closure is done for a CGD companies post authorisation a fixed
amount is allocated for the 1st 5 year of operations. Even for the project on 100 percent
equity the board resolution stating the approval of Capex to be incurred in the 1st 5 year
is submitted to PNGRB. It can be an issue for the some of the new private players and also
subjected to the financial feasibility of the project.

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*7. High Land acquisition charges impacts CNG business. The concept of putting the CNG
Stations at the existing OMC’s retail outlets is very much into fashion which saves the
additional capex of land purchase or lease thing. Also, the DODO model is being promoted
by the CGD companies now-a-days.

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*8. Procurement costs impact CNG business performance My take on this is that it is a one-
time investment and then you start making money in case of CNG station. Also, if we talk
about the replacement of machines at CNG station that also takes place typically after 15
years of life. In that stage the facility is able to self-generate the additional Capex
required for the replacement.

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*9. High customs duties on imported capital goods and intermediary goods affect CNG business
Most of the equipment manufacturers for CGD facilities (particularly CNG also) are doing
the operations within in India. As per discussion with the IGL, rates are more or less
standardised and accepted by the market. Also, a good level of competition is there
among the Compressors (Delta, Kirloskar, Chicago Pneumatic, buckhardt etc.,),
Dispensers (Compaq, Delta, TGT etc) manufactures. TGT i.e. Tulsa gas is having their
factory in Sonipat HSIDC and also Buckhardt is doing their manufacturing of compressor
in Narayana Delhi and expanding in Noida also.

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*10. Sufficient cash flow necessary for CNG business scale expansion there are enough gross
margin available for the CGD entities in the CNG segments even after giving the
significant discounts in reference to the other alternative fuels. This ensures the
sufficient cash flows and even the project is able to generate the Reserve & Surplus which
can fund the future expansion.

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*11. Managing Liquidity is a challenge for CNG companies (This can be an issue for the new
private CGD players but the major companies like IGL, MGL & Gujarat Gas are the Cash
rich companies.

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*12. Take or pay gas contracts put pressure on the companies

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*13. Current exchange rate impact the business performance

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*14. Uniform pan- India taxation on CNG & PNG is must for CNG business growth

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*15. Project execution is a challenge for CNG players only applicable for new players who
have entered the market in the Round 9 & Round 10. Just to take care of that these new
CGD companies are recruiting the experts from the PMC, TPI’s and consulting firms.

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*16. Vehicle filling time is a challenge in CNG business (It is the function of high demand
against less infrastructure which leads to queues at the CNG site. Also, for the companies
like IGL & MGL it is difficult to procure the lands to put the company owned stations.
Putting more stations at the OMC RO’s is advisable to overcome the station. For the new
CGD companies it is not an issue. Also, the better technology to fuel at the faster is also
available in India.

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*17. Locating underground leaks and pipe is a challenge Required to be specified where at
the CNG station or in entire CGD network ?

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*18. Insufficient production capacity due to lack of facilities limit CNG sales we are talking
about the India’s domestic gas production? Yes, if this is the case then in future with
increase in demand it will not be able to get the cheaper domestic allocation for domestic
and transport segment. This will further result in squeezing the gross margin of the CGD
companies.

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*19. Low penetration of gas-based equipment & appliances limit CNG expansion

IGL is catering ~10 lacs CNG vehicles in the Delhi –NCR and technology is readily available
for conversion to CNG. Also, to some extent the company fitted models of CNG are
available. EV and BS VI can have the impact on the growth in future but that too after 5
years.

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*20. Construction work by local bodies/conflict management impact CNG operations Question
needs to be elaborated for more understanding and feedback purpose.

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*21. Managing quality is a challenge CNG is basically the NG compressed at 200 Barg by CGD
companies. Only the mercaptane is added as an odoriser. Calorific Value of the NG
supplied by GAIL is standard i.e. 9880 Kcal/Kg (on GCV basis) and approx. 8500 Kcal/Kg
(on NCV Basis). Only, the issue can be Rich Gas or Lean Gas which is applicable for the
some of the cases only (which is very rare even).

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*22. Stricter environmental regulations is must for CNG growth Mandate from NGT or GoI
positively increase the NG demand

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*23. Managing customers’ expectations leads to high sales

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*24. Shortage of skilled workforce impacts business growth

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*25. Franchisees and subcontractors training for improving customer experience at CNG station
(Need more clarity on question) – what perspective is to be given

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*26. Localizing managers and site supervisors augurs well for CNG sales

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*27. Limited OEM fitted CNG vehicles restricts CNG sales

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28. Address
Manpreet Singh
Name
Feedback Infra
Company
15th Floor, Tower 9B
Address
DLF Phase 3, Cyber City
Address 2
Gurgaon
City/Town
Harayana
State/Province

ZIP/Postal Code
India
Country
Email Address manpreet.singh@feedbackinfra.com
Phone Number 9720498775

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