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Stellar volume growth continues
* Another year of superlative volume growth (+14%YoY).
* Volume traction likely to continue over medium term while spreads likely to be sustain.
* IGL to take over operations of Haryana City Gas Distribution for CGD in Gurugram; potentially add ~1.5mmscmd over next 5 yrs.
* Introduction of natural gas to GST will add to volume momentum.
We maintain our FY20/21E earnings. IGL remains a play on rising pollution concerns. Expanding geographical reach coupled with increased cars/taxis 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)
Stellar volume growth remain the highlight:
IndraVolume trajectory for IGL is likely to remain strong, given rising pollution concerns and addition of new buses. Also, opening of new CNG stations and continued traction in taxis/private car conversion will aid volumes. Recent reports of ban on furnace oil and petcoke in NCR along with geographical expansion will aid volume momentum in medium term.
CNG, PNG volume traction remains strong:
IGL’s gas sales momentum remains strong as Q4FY19 CNG and PNG volumes were at 294m kgs (+15% YoY) and 149mscm (+20% YoY), respectively. Within PNG segment, the industrial and commercial volumes were up 30% YoY given recent ban on use of petcoke and furnace oil. For FY19, overall volumes were at 5.9mmscmd (+14%YoY).
IGL’s Q4 spread at Rs5.87/scm (PLe Rs6.2) due to high staff cost of Rs466m (+69%YoY). For FY19 spreads were at Rs5.81/scm vs Rs5.87/scm last year. We expect spreads to remain healthy supported by benign domestic gas prices along with benign spot LNG prices.
To add Gurugram to its fold:
IGL has recently won a Supreme Court order to take over operations of Haryana City Gas Distribution services in Gurugram. The Supreme court has asked an auditor to value the operations of HCGD spread over 20CNG stations and 160km pipeline network, as per reports. While current volumes are at 0.25mmscmd, Gurgaon has good growth potential in CNG and PNG. Close proximity to IGL’s existing network will reduce need for huge investment.
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