Published on 25/06/2019 10:57:44 AM | Source: Religare Securities Ltd

Buy Indraprastha Gas Ltd For The Target Rs.337 - Religare Securities

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Strong volume/revenue growth drives performance

Indraprastha Gas Ltd’s (IGL) Q3FY19 performance has been largely in-line with our estimates barring higher than expected contraction in margins. Its revenue grew by 29% yoy to Rs 1,508cr (net of excise duty) led by strong volume growth of 12% yoy. EBITDA grew by 21% yoy to Rs 318cr, while EBITDA margin declined by ~140 bps to 21.1%. PAT during the quarter grew by 19.3% yoy to Rs 198cr. In Q3FY19, CNG volumes grew by 13% yoy to 291 mn kgs, while PNG volumes reported growth of 10% yoy to 138 mn scm. Going forward, low penetration of CNG and PNG provide significant growth opportunity to IGL to leverage its existing network as well as scope to enter into new markets. Hence, we maintain a Buy on the stock with a revised target price of Rs337.


Q3FY19 Result Update:

* IGL’s sales growth was led by strong performance in both CNG and PNG segments. CNG sales grew by 26% yoy to Rs 1,248cr, while PNG sales grew by 35% yoy to Rs 413cr. In volume terms, CNG grew by 13% yoy to 291 mn kgs. In PNG, highest volume growth of 13% yoy was recorded in Industrial/Commercial segment. Sales to residents (domestic) and direct sale of natural gas grew by 11% and 5% yoy respectively in volume terms. Hence, PNG recorded total volume growth of 10% yoy to 126 mn scm.

* EBITDA grew by 20.8% yoy to Rs 318cr. Increase in power & fuel expenses due to increase in sales volume of CNG and increase in repair and maintenance cost led to ~140bps yoy decline in EBITDA margin from 22.5% to 21.1% in Q3FY19. Hence, led by strong EBITDA and 23.8% yoy growth in other income, net profit increased by 19.3% yoy .

* IGL’s 50% stake in two city gas distributors - Maharashtra Natural Gas (MNGL) and Central UP Gas (CUGL) earned it a net profit of ~Rs 27cr (~Rs 17cr in Q3FY18).


Outlook & Valuation:

We expect IGL’s sales and PAT to grow at a CAGR of 20% and 18.3% respectively over FY18-21E on account of network expansion, increasing conversion to CNG and economic benefits of CNG/PNG vs auto fuels. IGL stands to benefit from increase in award of geographical areas (GA) (50 GAs to be offered in the 10th bidding round vs only 6 cities in 8th round) for gas distribution and extension of market exclusivity (8 years and extendable by 2 years vs 5 years earlier) for city gas distributors. Hence, we maintain a Buy on the stock with a revised target price of Rs337. Further, any allocation of distribution licenses in the 10th bidding round (licenses likely to be awarded to selected bidders by February 2019 end) to IGL would be an upside risk for the stock.


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