Liquefied Natural Gas (LNG): The Future of India’s Commercial Transport and a Small-Cap Stock You Should Watch

India’s commercial transport sector is on the cusp of a significant transformation, driven by the need for cleaner fuel alternatives and reduced dependence on diesel. A small-cap company, Inox India, may be poised to play a crucial role in this transformation, particularly in relation to the adoption of Liquified Natural Gas (LNG) in the country’s heavy-duty vehicle segment.

Hertz and EVs: A Sign of Things to Come?

Recently, Hertz, the global car rental company, made headlines for choosing to replace its electric vehicle (EV) fleet with traditional gas-powered cars. This decision was influenced by the hidden costs associated with EV ownership, a factor that led to a drop in the stocks of Tesla and Polestar, two prominent EV manufacturers.

While the electric vehicle revolution is progressing at a fast pace in some segments, India’s adoption has been slower, particularly in the four-wheeler and heavy-duty vehicle categories. The primary barriers include infrastructure limitations and high upfront costs. However, an alternative clean fuel option is emerging on the horizon—Liquefied Natural Gas (LNG).

LNG as a Game Changer for India’s Heavy-Duty Transport

India has set an ambitious goal: to power one-third of its heavy-duty vehicles with LNG within the next five to seven years. The use of LNG is part of a broader strategy aimed at reducing the country’s dependence on diesel, lowering pollution levels, and increasing the share of natural gas in India’s overall energy mix from 6% to 15%.

This strategy offers immense potential for transforming India's transportation landscape. But is this just another ambitious goal, or is it a genuine opportunity for growth? A look at other countries that have successfully adopted LNG as a fuel source for commercial transport offers encouraging insights.

Global Adoption: Learning from China and Other Markets

China leads the way in LNG adoption with a fleet of over 800,000 LNG-powered trucks. In contrast, the United States and Europe collectively have approximately 15,000 LNG vehicles on their roads. India, meanwhile, has only 500 LNG-powered trucks currently in operation, indicating that the country is still in the early stages of its LNG adoption journey.

However, India's ambitious LNG goals are being supported by concrete steps. The government has announced plans to set up 50 LNG filling stations along the Golden Quadrilateral, with the aim of establishing 1,000 such stations by 2030. These stations will be operated by companies in the oil and gas sector, including Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL), Hindustan Petroleum (HPCL), and GAIL.

Challenges and Opportunities in Infrastructure Development

One of the main obstacles to large-scale LNG adoption is the chicken-and-egg dilemma. LNG filling stations require a sizable fleet of LNG-powered trucks to be economically viable, but fleet owners are hesitant to invest in these trucks without sufficient infrastructure in place.

The government’s initial investment in 50 LNG stations is a significant step towards overcoming this hurdle. Once the fleet of LNG-powered trucks reaches around 2,500, these stations should become financially sustainable. Moreover, the total cost of ownership for LNG trucks, when accounting for fuel efficiency and operational costs, is lower than that of diesel trucks, making them a cost-effective option in the long run.

Fleet owners in industries such as cement, chemicals, mining, steel, and container logistics are increasingly interested in converting their fleets to LNG-powered vehicles. Companies like Dehlivery are also exploring LNG as a sustainable and cost-effective solution for long-haul transport.

Tata Motors, Ashok Leyland, and Blue Energy: Key Players in LNG Truck Manufacturing

Several major Indian automakers have already recognized the potential of LNG in the commercial vehicle market. Tata Motors, Ashok Leyland, and Blue Energy are among the leading companies that have introduced LNG-powered trucks. Blue Energy alone has deployed 500 LNG trucks, indicating growing momentum in this space.

Inox India is poised to benefit from this shift as it specializes in cryogenic equipment essential for the storage and transportation of LNG. The company holds a 70-75% market share in the LNG station segment in India, making it a critical player in the infrastructure build-out required to support the LNG transition.

Inox India: A Small-Cap with Big Potential

Inox India is a global leader in providing customized cryogenic equipment, including storage tanks, transport tanks, vaporizers, and regasification systems. The company has a customer base spanning over 100 countries, with nearly 50% of its revenue generated from exports.

Inox India’s business segments include industrial gases, LNG, and cryo-scientific applications such as satellite and propulsion systems. LNG accounts for 15% of the company’s revenue, and 23% of its Rs 11 billion order book is tied to the LNG segment. The company supplies cryogenic storage and transportation solutions to both public sector undertakings (PSUs) for fueling stations and to truck manufacturers for LNG fuel tanks.

Market Leadership and Financial Health

Inox India’s leadership in the LNG infrastructure market is evident from its dominant position in the supply of stationary and mobile LNG tanks. With over 60% of India’s LNG storage tanks supplied by Inox, the company is well-positioned to capitalize on the growing demand for LNG infrastructure in the country.

Financially, Inox India is a solid performer. The company is almost debt-free, boasts an operating profit margin of over 20%, and has return ratios exceeding 30%. These financial metrics, coupled with the company’s market leadership, make it an attractive prospect for investors looking to capitalize on the LNG revolution in India.

Conclusion: A Promising Future for LNG and Inox India

As India’s commercial transport sector looks to reduce its reliance on diesel and embrace cleaner fuel alternatives, LNG is emerging as a viable and cost-effective solution. The government’s focus on building LNG infrastructure and the growing interest from fleet owners suggest that this is more than just an ambitious target, it is a real opportunity for growth.

Inox India, with its expertise in cryogenic equipment and its dominant market position, is well-positioned to benefit from the country’s shift towards LNG. While the transition to LNG will take time, the groundwork is being laid for a future where a significant portion of India’s heavy-duty vehicle fleet runs on cleaner, more sustainable fuel.

Investors should keep an eye on companies like Inox India that are poised to play a key role in this evolving market. As always, it's crucial to conduct thorough due diligence before making any investment decisions.