India's leading city gas distributor, Indraprastha Gas Ltd. (IGL), is enduring its most severe stock plunge in over three years, grappling with the repercussions of a stock downgrade by Jefferies and Morgan Stanley (NYSE:MS). The downgrades were triggered by Delhi's proposed electric vehicle (EV) policy, which could risk about a third of IGL's volumes, predominantly sourced from Delhi (88%). As a result, IGL's shares dipped 11%, causing ripples through other gas companies such as Mahanagar Gas and Gujarat Gas.
On Friday, Jefferies analysts Bhaskar Chakraborty and Niraj Todi indicated that the impending EV policy might pose a significant threat to IGL's volumes. The stock was downgraded to hold from buy, with its price target cut by 18%. Morgan Stanley followed suit with a similar downgrade.
The proposed EV policy mandates all commercial vehicles to switch to electric by 2030. This could cause a "longer-term overhang" for IGL, according to Citigroup Inc (NYSE:C).'s analysts Saurabh Handa and Prerna Goenka. They mentioned uncertainty regarding policy timelines as a potential concern.
According to InvestingPro data, the company's P/E Ratio (Adjusted) for LTM2023.Q3 is -2.2, while the Price % of 52 Week High is at 14.23%. The company is also trading at a Price / Book of 0.42 for LTM2023.Q3.
Despite the downturn, Kamal Kishore Chatiwal, IGL's Managing Director, disputes the exaggerated impact on gas sales. He forecasts a consistent rise in demand due to increased vehicle sales. Chatiwal also highlighted that the shift of large diesel-fired power backup generators to gas would further stimulate demand.
InvestingPro Tips indicate that IGL holds more cash than debt on its balance sheet and has maintained dividend payments for 20 consecutive years. This suggests a strong financial foundation, even in the face of potential challenges. Additionally, the company's cash flows can sufficiently cover interest payments, indicating financial stability.
While IGL and other gas companies face challenges due to the proposed policy, EV firm Olectra Greentech experienced gains, indicating a shift in market dynamics favoring electric vehicles. For more insights into IGAS and other companies, consider exploring InvestingPro's product which includes additional tips. Currently, there are 11 more tips listed for IGAS on InvestingPro.
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