Indraprastha Gas Ltd. share price target

Easing of COVID restrictions, strong financial position, improved capacity utilization, cost improvement initiatives should support performance in future. We reiterate our BUY rating on the stock with a revised price target of Rs. 624 based on SOTP methodology....

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Pandemic restrictions impact volumes: Indraprastha Gas' (IGL's) Q1FY22 volumes declined due to pandemic restriction and were at 484mscm (-21% QoQ; PLe 550). QoQ comparison is not strictly comparable, given seasonality and volumes were down 15% compared to June 2019 quarter. For Q1FY22, CNG and PNG volumes were at 233m kgs (-24% QoQ) and 152mscm (14%QoQ), respectively. However, easing of restrictions and rising vaccination...

IGL underperformed the broader index by 20% over last one year, as restricted vehicular movement during pandemic hit FY21 CNG volumes by 22.5%YoY (CNG accounts for ~70% of IGL's overall FY21 volumes). However, we expect CNG sales to rise going ahead given 1) receding pandemic concerns, 2) expanding vaccination coverage, 3) continued preference for personal mobility, 4) favorable fuel economics (CNG ~70% cheaper to petrol)...

IGL reported a mixed bag result, with lower than our estimate EBITDA/scm (at INR8) and higher than our estimate volumes (at 6.8mmscmd) translating to in line EBITDA at INR4.9b (+31% YoY). CNG volumes rose 8% YoY, although down v/s pre-COVID levels of 4.92mmscmd (in 2Q-3QFY20). EBITDA/scm was lower than our estimate due to higher opex, despite the...

We lower our FY22-23e earnings estimate by 8.7%/5.6% to factor in lower volume assumption even as we increase our margins. FY21 was a difficult year for IGL as pandemic restrictions on vehicle movement hit CNG volumes. However, easing of restrictions along with rising vaccination coverage will limit incidence of lockdown, going ahead. IGL remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Also, shift to private vehicle ownership post...

Improved capacity utilization, easing of COVID restrictions and institutions reopening will support the company's operational and financial performance in the near future. Hence, we reiterate BUY rating...

Gross margins in Q3FY21 were at | 14.4/scm (up | 2.8/scm YoY and | 0.8/scm QoQ) above our estimates due to lower than expected gas costs. Subsequently, the company reported strong EBITDA/scm at | 8.7/scm, up | 2.3/scm YoY and | 0.6/scm QoQ. With increase in petrol and diesel prices, the competitive advantage of CNG increased substantially over past few months. Hence, we believe that IGL will be able to pass on higher costs to customers in future. Going forward, on account of increase in LNG prices, we expect gross margins to decline from current high levels. Subsequently,...

OMCs have been in talks with CGDs to increase commissions to sell CNG at their ROs. We may see a hike in rentals for IGL soon. We build in EBITDA/scm of INR6.7/INR6.4 (unchanged) for FY22/FY23, factoring in a rise in rentals to OMCs as well as APM cost which the company may not be able to fully pass on to consumers. The stock trades at a ~69% premium to GUJGA, which has similar volume growth potential for a 1012% CAGR over the medium term, despite a much larger base. We value the company at 24x FY23E adj. EPS of INR18.6...

We present key takeaways from our recent interaction with the Indraprastha Gas (IGL) management.