The June Qtr numbers were disappointing to say the least, with RM price pressure, but according to the promoters, the primary reason for the poor numbers apparently was the so called sudden fall in the demand for the CNG cylinders immediately after the last can call!
Prima facie, the demand for CNG for the auto sector comes from the fact that running the vehicle on CNG has always been substantially cheaper than Petrol / Diesel. At least 30% cheaper. This is the biggest motivation for someone wanting to buy a vehicle running on CNG. With the steep increase in the price of CNG over the last few months, & the price differential itself in doubt, then where is the motivation for the consumer to buy? The fact that it is a cleaner fuel is hardly a factor for the price conscious middle class consumer. No wonder, the OEM’s were suddenly finding fewer buyers for CNG driven vehicles, & the demand for CNG cylinders dropped drastically.
Further, the Mgt. in the con call, mentioned that it was not seeing any pick up yet in the current Qtr (Q2). If the Mgt. is to be believed, that the sudden drop came immediately after their Con call, then it was probably only half of the qtr. that was impacted. By that logic, the Sept Qtr could easily be worse than Q1.
With the Govt focus too on ethanol blending to reduce the import bill, the thrust on CNG is likely to suffer somewhat. That said, the long term prospects continue to be decent for the sector as a whole & at some point in the future, the price differential will return again & the demand for CNG cylinders could pick up. Till then its a bit of wait & watch. The stock price has taken a beating, making it a difficult choice for the investors whether to cut their losses & exit or wait for the price differential to return in due course.
A difficult choice indeed.
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