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* In this note, we highlight the key structural shifts that have reshaped India’s city gas distribution (CGD) sector in the past 5-7 years, laying the foundation for a durable, multi-year growth runway. These changes include a policy mandate to expand CGD coverage nationwide, increased participation of private capital, a larger execution role for OMCs, and an improvement in the quality and economic density of geographical areas (GAs), enhancing RoCE potential for operators. In parallel, several states have rationalized natural gas taxation, improving competitiveness vs. alternate fuels.

* These reforms have driven a sharp scale-up in downstream infrastructure, with the number of CNG stations rising ~4x over the last six years, alongside a significant expansion in CNG vehicle models in PV and CV segments. The CNG powertrain remains one of the fastest-growing categories in India’s PV market (FY25: +35% YoY) and now forms a meaningful share of OEM sales. CNG mix for TTMT/MSIL rose to 25%/18% in FY25 from 16%/15% in FY24. Unlike EVs, recent CNG launches are largely focused on the affordable sub-INR1m segment, supporting broader adoption. We expect CNG penetration in overall industry volumes to continue to rise in the medium term.

* The benefit of these reforms is evident from strong volume growth and network expansion posted by companies within our coverage universe as well OMCs and not covered private players. Among the listed CGD players, we continue to like Mahanagar Gas or MAHGL (strong volume growth + inexpensive valuations), though we think price hikes will be imperative for a re-rating. We also like Indraprastha Gas (IGL) as we see a strong likelihood of margin expansion following the recent tweak in tax and zonal tariff reforms.

‘One Nation, One Grid’ gains momentum as ownership broadens

* CGD footprint expands nationwide as private and OMC participation deepens: Over the past decade, India’s CGD footprint has expanded from ~40 pre-PNGRB areas to 307 authorized GAs, creating a contiguous gas ecosystem where trunk pipelines, spur lines and stations collectively serve households, vehicles and industries at scale. This expansion has coincided with a clear shift from a public sector/JV-led structure to balanced private and OMC participation, particularly across PNGRB bidding Rounds 8 to 12.

* Capital commitment deepens with private players taking the lead: Cumulative committed capex in Rounds 8-12 exceeds INR1t, with majority contributed by private players, reflecting deep and durable capital commitment to a nationwide rollout. Participation by committed, well-capitalized players supports the development of a pan-India CGD ecosystem. OMCs bring the benefit of strong balance sheets and established distribution networks, enabling a faster rollout, while OEMs are increasingly launching multiple CNG variants. Momentum across CGD players has progressively shifted from the pre-PNGRB phase through Round 12, based on GA allocations.

Scale and density in new GAs reduce capex burden

* Larger, denser GAs enhance capital efficiency and returns: The GA profile of CGD players has improved materially, leading to a reduction in capex intensity per unit of gas sold. New GA allocations, especially in the 9th and 11th rounds, cover larger and more economically dense regions, including urban centers and industrial corridors. This allows fixed infrastructure costs such as pipelines, compressors and metering stations to be spread across high consumption volumes, lowering capex per SCMD.

* GA quality has improved meaningfully across PNGRB rounds: Early rounds featured smaller, fragmented GAs, limiting scale benefits (Rounds 6-8 together awarded only 25 GAs). A clear step-change emerged from the 9th round onward, with 86 GAs awarded across ~0.8m sq. km, followed by the 10th round’s 50 GAs over ~0.6m sq. km, materially increasing average GA size and density. Subsequent rounds (11th-12th) focused on strategic infill, including the North-East and Union Territories, effectively completing pan-India CGD authorization.

* Demand base broadens beyond legacy segments: Historically, city gas demand was concentrated among select industrial consumers and public transport fleets, with limited household PNG penetration and low consumer awareness. Currently, demand is expanding across private CNG vehicles, logistics fleets, domestic PNG households, commercial establishments, MSMEs and large industries. This shift has been supported by rising awareness and supportive government policies promoting CNG/PNG adoption. The resulting diversification of the demand base improves long-term revenue stability, enhances volume visibility and supports sustained growth for CGD companies.

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