Indraprastha Gas Ltd. share price target

Entering new GAs is a better bet for new entrants, rather than competing with incumbents, given (1) Assurance on APM gas allocation, and (2) Marketing and infrastructure exclusivity. Hence, we do not foresee material threat to business. IGL generates OCF yield of almost 5.5% and RoIC of >30% over FY20/21E. Valuations are contextually moderate at 22.0x FY21E EPS. Maintain BUY with a TP of Rs 384/sh. Investors have recently expressed concerns over looming competitive risks for Indian CGD players such as IGL, MGL, GGL and Adani Gas. We met the management of IGL to discuss PNGRBs concept paper (refer annexure) on network/compression tariffs chargeable by incumbents. While PNGRBs intent seems noble, there is lack of clarity on domestic gas allocation to new entrants entering established Geographical Areas (GAs). New entrants will thus focus more on bidding for upcoming GAs, instead of competing with incumbents in established GAs.

Key takeaways from our meeting with the Indraprastha Gas (IGL) management: (a) buoyant volume growth outlook to sustain at >10% CAGR over FY18FY21; (b) limited impact from PNGRB concept paper (read our analysis here) that paves the way for competition in existing areas, as tariff calculations remain uncertain; and (c) stable operating margin outlook as primary focus remains on expanding volumes. Recent volume growth, if sustained, may carry earnings...

We do not foresee any crucial regulatory adversity in CGD either through a change in gas allocation or capping returns because the superior returns in CGD will be reinvested and will help increase the share of gas in India's energy mix to 20% (from 6% currently) by 2025 We maintain BUY on IGL after an in-line 4QFY19. Our target is Rs 385/sh (25x Mar-21E standalone EPS and 23x Mar-21E for its subsidiaries, MNGL and CUGL).

IGL continued to report strong growth rate on the volumes front, up 15.9% YoY to 6.3 mmscmd. The rise in environment awareness & regulations has prompted the need for CNG conversions in Delhi, thus benefiting IGL's CNG volumes at 4.6 mmscmd in Q4FY19 up 13.1% YoY. On the PNG front, volumes increased 20.2% YoY to 1.7 mmscmd. Delhi's green budget with plans to provide concession of 50% on registrations of CNG cars will promote the cleaner fuel. Also, the relatively high petrol and diesel prices favour IGL's volume growth. We estimate sales volumes at 6.6 mmscmd and...

Volume growth stronger than expected. Spreads Muted. Maintain BUY. IGL volume at 6.27 MMSCMD with realizations of ` 27.2 per SCM (up 7.3% YoY) was ahead of estimates. Volume growth was spurred by strong performance in the industrial segment. Gas cost also reduced 3.9% sequentially. Gross spreads were strong at ` 11.2 per SCM. We believe that gas cost should increase sequentially and IGL has taken adequate price hikes to maintain / expand spreads. Volume growth outlook looks good and we believe that IGL should be able to maintain double-digit volume...

conversion and new bus addition in Delhi will drive earnings. Also, report of ban on competing industrial fuel is a major positive. Reiterate BUY with a three-year DCF-based PT of Rs360. Stellar volume growth remain the highlight: Indraprastha Gas' (IGL's) Q4FY19 volume momentum remains intact- overall sales volume growth was at 564mscm (17% YoY). Q4 EBITDA and PAT of Rs3.3bn (PLe: Rs3.3bn; +14%YoY) and Rs2.25bn (PLe: Rs2.13; +29% YoY). For FY19, EBIDTA and PAT was at Rs12.5bn (+12%YoY) and Rs7.9bn (+17%YoY)...

Indraprastha Gas' (IGL) Q4FY19 consolidated earnings were in line at Rs 2.4bn (+24% YoY). IGL's core volumes at 6.3mmscmd (+17% YoY) outperformed our estimate of 5.9mmscmd, driven by a surge in CNG (+15% YoY) and industrial PNG (+30% YoY). However, EBITDA underperformed at Rs 5.9/scm, as the company prioritises volume expansion over margins. We cut FY20/FY21 earnings by 10.6%/12.3% as we trim margins. Our DCF-based...

EBITDA increased 20% YoY (+4% QoQ) to INR3.3b (our estimate of INR3.4b) in 4QFY19, led by higher volume growth. However, EBITDA/scm declined marginally to INR5.9 (our estimate: INR6.3, 4QFY18: INR5.7; 3QFY19: INR5.9) due to higher costs. Notably, IGL did not take any price hike in the quarter. Increased other income, though, led to higher-than-expected PAT of INR2.3b (+29% YoY; our estimate: INR2.2b). Volumes increased 17% YoY (+6% QoQ) to 6.3mmscmd (5% beat). CNG volumes were at 4.6mmscmd (+16% YoY, +5% QoQ), while PNG volumes...

Global growth showed signs of respite with manufacturing activity improving in both US and China. It may not last long. Global services PMI also improved in Mar'19. This along with prospects of US-China trade deal and rising crude prices (up 3% to US$ 70/bbl) led to higher yields. Equity indices also went up. RBI's dovish outlook to boost growth through lower real rates supported domestic markets. INR depreciated amidst FII outflows. RBI's second...

We met the management of Maharashtra Natural Gas (MNGL), where Indraprastha Gas (IGL) owns 50% stake. Key takeaways: Surge in volumes from existing areas of operations: MNGL's volumes from existing areas (primarily Pune city/Chakan) are currently trending at ~0.85mmscmd (+40% YoY), dominated by CNG (63% of total volumes). MNGL has commissioned ~20 new CNG stations in FY19 (taking the count to 72), and plans to ramp up the station count to 100 by FY22 in existing areas. Similarly, domestic PNG volumes have ample scope for expansion. MNGL sees...