City gas distribution companies are not fazed by the threat from electric vehicles (EVs).

Vehicles using compressed natural gas (CNG) are expected to remain popular with commercial users over the medium term.

Although recent data has shown growing interest among car aficionados for EVs, analysts at HSBC believe that the slow shift toward the latest technology will not affect the CGD firms for whom CNG sales remains a major revenue source. The other key contributor to their topline is piped natural gas (PNG).

“Of course, there will be competition from newly-launched EVs which may seem greener. But most CNG vehicles are used for commercial operations which means economics and infrastructure are far more important decision drivers. The economics of CNG vehicles in terms of upfront costs, availability of finance, resale value, choice of models and infrastructure in terms of refuelling/charging infrastructure, repair and maintenance is far superior to EVs in the medium term,” they said in a report.

According to the brokerage, India’s CNG vehicle sales have grown at a compounded annual growth rate of by 8.3 per cent over the past seven years.

As a result, CNG vehicles account for around 6 per cent of all vehicle registrations, up from 4.5 per cent in 2011.

The CGD players are expected to expand their operations to cover an estimated 70 per cent of the population and this is only expected to buttress demand for CNG vehicles.

Last month, the Petroleum and Natural Gas Regulatory Board (PNGRB) — the regulator for the downstream sector — invited bids for city gas retailing licences in 65 geographical areas in the 11th licensing round.

In the previous round, 50 GAs were authorised for the development of the CGD network.

The government has been pushing for the expansion of the city gas network as part of a plan to raise the share of natural gas in the country's energy basket to 15 per cent by 2030 from the current 6.3 per cent.

The HSBC analysts, who also compared the economics of CNG with EV and other fuels, said CNG was still attractive at current EV prices even if one accounts for the total cost of ownership.

“While we believe personal vehicle owners may still prefer EV over other fuels, we think CNG will find itself as a preferred alternative for commercial vehicles which run constantly and need quick refuelling,”, they said.