The outlook for high-pressure CNG cylinders market in India is positive. With Government initiatives for facilitating the discovery & exploration of natural gas, growth of robust distribution channels, fiscal benefits to the manufacturers of cylinders, retrofitting of CNG kits, tax exemption for commercial & heavy vehicles and new licensing policy, the industry is likely to register impressive growth over the coming years.
The CNG cylinder manufacturers are currently benefited by strategic alliances with various OEMs, opening manufacturing facilities in SEZs, reducing dependence for raw materials upon a few suppliers and targeting low penetration foreign markets. Due to high degree of regulation, the entry barriers in the industry are strong, making it more profitable for the existing players. However, rising cost of seamless steel tubes, which is a key input, remains a pressing concern for the manufacturers. Further, excess dependence of the industry on Government policy framework, leaves it vulnerable to the effects of any changes in rules and regulations.
Over the last two years, impacted by global recession, the industry was plagued by the plunging consumer demand and cancelled industrial orders in the automobiles sector. Sales (TTM) in the industry registered a low y-o-y growth of 4.85%, against an average of 12.14% over last five years. Operating margins (TTM) was registered at 3.14%, against a five year average of 14.46%. At the same time, the CNG conversion activity caught up during the final run up to the Commonwealth Games, 2010. The number of CNG vehicles grew by 71% in Delhi, during 2007-08. The CNG cylinder industry is an attractive investment proposition from a long-term perspective, a horizon that evens out such short-term volatility associated with new industries.
The CNG cylinder market space is dominated by Everest Kanto Cylinders (EKC), the only listed supplier of CNG cylinders. EKC, with almost 80% of the market share, has a clear edge over the other players as the pioneering entrant, on the account of economies of scale, large export orders, inorganic growth, process substitution and planned capacity expansion.
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