Indraprastha buys 50% stake in UP city gas firm

Indraprastha Gas Ltd, India’s only listed city gas distribution company, increased its market reach beyond the National Capital Region on Tuesday by buying a 50% stake in Central UP Gas Ltd.

The acquisition gives the company access to two cities – Kanpur and Bareily – where compressed natural gas (CNG) is currently used as a mode of transport; and licence to start operations in Unnao and Jhansi.

While the deal value is less at Rs 70 crore and would not alter the balance-sheet much, analysts said it gave synergistic benefits to the company.

“The city gas distribution market is very small but has a huge potential. Though this growth will not come in the next 2-3 years,” said an analyst with a domestic brokerage.

The company bought the stake from IDFC Private Equity, IL&FS and Asian Development Bank (ADB), which had bought the 50% stake for Rs 30 crore.

Central UP Gas started operations in April 2006 in Kanpur, and the year later it entered Bareily.

While the city gas distribution market is expected to grow rapidly, experts say with the increasing price of administered price mechanism (APM) gas, the city gas market may not stay as attractive as it is now.

The analyst said currently Indraprastha Gas charges close to Rs 42 per kg for re-filling motor vehicles with CNG, which may go up to Rs 60 per kg closer to the price of diesel. This may take the sheen off city gas.