Indraprastha Gas Ltd. share price target

Revenue decreased by 2.03% to Rs. 942.9 Cr in Q3FY17 when compared to the previous quarter. On the other hand, it rose by 1.72% when compared with Q3FY16.

IGL reported strong results led by volume growth (4.6 mmscmd, 15% YoY) and a high EBITDA margin of Rs 5.8/scm. EBITDA was at Rs 2.5bn ( 27%). No interest cost and higher other income (co is debt free, strong FCF) boosted APAT to Rs 1.4bn ( 37%).

ICICI Securities Ltd | Retail Equity Research Indraprastha Gas (IGL) reported its Q3FY17 results, which were above our estimates on both the topline and profitability front on account of higher than estimated sales volumes. IGL's revenues reported an increase of 1.9% YoY at | 946.7 crore, above our estimate of | 907.72 crore. Volumes increased 16% YoY to 4.6 mmscmd on account of increase in CNG as well as PNG volumes EBITDA at | 247 crore came in line with our estimates of | 249.4...

Strong volume growth ( 12% YoY) and gross margin expansion (reduction in CNG/PNG prices not at par with the slash in gas prices) resulted in EBITDA of Rs 2.5bn ( 28% YoY). Higher other income (increase in liquid investments) and no interest cost (co is debt free now) have boosted APAT to Rs 1.4bn ( 42%).

ICICI Securities Ltd | Retail Equity Research Indraprastha Gas (IGL) reported its Q2FY17 results, which were a tad below our profitability estimates. IGL reported flat YoY revenue at | 966.7 crore, above our estimate of | 950.2 crore. Volumes...

IGL's Q2FY17 PAT at Rs 1.4bn was in line with our estimate,as strong volume growth at 12.4% YoY (8% expected) was offset by EBITDA margin decline to Rs 5.8/scm (Rs 6.2/scm expected).Volume growth was led by ramp-up of new CNG outlets (as guided by the Supreme Court) and pick-up in PNG volume in Ut..

Highlights of the quarter:Total volumes were at 4.34 mmscmd (+13%/+6 YoY/QoQ). CNG volumes were at 3.32 (+12% YoY) and PNG volumes were at 1.02 mmscmd (+18%). Average realisation was Rs 25.2/scm (-11% YoY), whereas gas cost fell to Rs 12.1/scm (-25%) owing to a cut in domestic gas and RLNG prices. Gross margin grew to Rs 13.1/scm (+6% YoY) and EBITDA margin was ever highest at Rs 6.6/scm (+12%).

Valuation: Strong volume growth (+13% YoY) and gross margin expansion (reduction in CNG/PNG prices not on a par with the cut in gas prices) resulted in EBITDA of Rs 2.6bn (+27% YoY). The lower interest cost (co is debt free now), higher other income and lower tax rates boosted APAT to Rs 1.5bn (+44% YoY).However, the stock has moved up by 30% in the past 3-months and we see limited upside in the near term. Margins may also see a sequential decline in the coming period.They downgrade to NEUTRAL with a TP of Rs 740/sh (16x FY18E consolidated EPS of Rs 46.2/sh).

Top takeaways from Q1FY17: Sharp recovery in volume growth to 13% yoy at 4.33mmscmd. CNG grew by a robust 10% yoy while PNG was up a whopping 17%. Volumes were up 6% qoq. Gross margin expanded by 11% (Rs 1/scm) qoq to Rs 10.6/scm on muted 2?3% retail CNG/DPNG price cuts, despite a 20% reduction in domestic gas rates.Opex fell by 1% qoq to Rs 1.6bn due to a decline in other expenditure, which was a positive surprise; we had expected it to rise due to commissioning of new outlets. As a result, EBITDA/scm rose by 25% (Rs 1.3) qoq to Rs 6.5, significantly beating estimates.CUGL/MNGL reported a robust gross PAT of Rs 340mn, up 42% yoy and 21% qoq.

Valuation: They upgrade the stock to Buy with a revised target price of Rs 840 (Rs 650 earlier). This implies a target PE of 16x, which believe is justified due to a sharp recovery in volume/margins and lower WACC in their DCF.  

Indraprastha Gas reported its Q1FY17 results, which were above their estimates. While revenues remained flat YoY at | 899.7 crore (I-direct estimate: | 916.5 crore) due to 11.4% YoY decline in net realisation, the operational performance remained strong with 13.2% YoY increase in total volumes . Gross margins were at | 10.7/scm, above our estimates of | 10.4/scm. Hence, EBITDA margins at 28.9% came in above our estimate of 24.6%. Subsequently, EBITDA came in at | 259.6 crore above our estimate of | 225.6 crore • PAT increased 45.3% YoY during the quarter to | 148 crore, above our estimate of | 126.8 crore.

Outlook and Valuation: IGL provides an opportunity to own a company with a rare mix of volume growth and expanding margins, supported by the subdued natural gas prices and supportive governmental initiatives. Sales volumes have grown at 8.1% CAGR over the last five years and are at 4.1 mmscmd in FY16. We believe IGL’s investment in Maharashtra Natural Gas (MNGL) (| 180.5 crore) is positive, giving it access to industrial gas demand in Pune, without much impact on its balance sheet. At 0.3 mmscmd, MNGL offers high growth potential. Also, investment of | 69 crore in Central UP Gas (CUGL), which is engaged in CGD in the cities of Kanpur and Bareilly, Unnao and Jhansi in Uttar Pradesh present a growth opportunity,value IGL based on the DCF methodology to arrive at a target price of | 870 (WACC – 12%, terminal growth – 4%)

 

 

Muted retail price cuts imply sharp gross margin expansion, but opex is a key factor We try to revisit our assumption of IGL’s EBITDA margin, which would have a significant bearing on its future earnings. After muted 2%/3% retail price cut in CNG/domestic PNG in Delhi against a 20% reduction in APM gas rate in April 2016, we estimate its gross margin has expanded by a significant Rs 1.3/1.0 per scm qoq in Q1FY17. Against this, IGL commissioned 90+ new OMC?located outlets in this period (~30% increase), which would raise expenses, as unit throughput would be lower and additional margins have to be paid to OMCs. The extent of opex/scm increase is a key determinant of how much the EBITDA/scm would grow. Continuous minimum wage hike is also a recurring feature in Delhi. IGL’s opex rose to Rs 4.5/scm in Q4FY16 from Rs 3.3/scm in FY14; therefore, despite an increase in gross margin (to Rs 9.6/scm from Rs 8.9/scm), EBITDA/scm fell to Rs 5.2 from Rs 5.6.

Phillip Capital Maintain Neutral with Rs 650 target price, await Q1 result to assess margin assumptions They keep earnings estimates and target price unchanged though there is a 10% upside to the same if EBITDA/scm expands to Rs 5.8.They would await Q1FY17 results to take a stock on the opex and thereafter change our estimates. Sector outlook is positive though valuations seem to price in existing triggers. Maintain Neutral.