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Remarkable volume growth
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).
HIGHLIGHTS OF THE QUARTER
* IGL’s total volume was up 17.0%YoY to 6.27mmscmd owing to 15.9% jump in CNG volumes to 4.61mmsmcd and 20.2% increase in PNG volumes to 1.66mmscmd.
* FY19 average volume was 5.9mmscmd, up 13.8% YoY, led by 13.4% increase in CNG volumes. CNG volume growth is attributable to 7.2% increase in consumption per vehicle to 4.04scm/vehicle/day and 5.8% growth in number of vehicles to 1.08mn. Industrial and commercial segment volume grew by 24.1% YoY to 0.69mmscmd owing to 20.8% increase in number of customers in the segment.
* Update on HCG take over: As per the Supreme Court’s order, Deloitte Haskins and Sells has submitted the valuation of Haryana City Gas (HCG) distribution business to the court. SC will seek views from IGL before finalising the valuation. Currently, IGL is supplying ~0.25mmscmd of natural gas to HCG.
* Expansion in Rewari: IGL has started the CNG sales at four OMC outlets in Rewari during FY19. It has plans to add 6 more CNG outlets and to connect 1,500 domestic households in FY20. Supply of gas has also picked-up in the industrial areas of Bawal and Dharuhera in 2HFY19.
* Capex: Incurred Rs 7.4bn in FY19 including CWIP. Having added ~54CNG stations, IGL now operates 500 CNG stations in total. Moreover, it has added 2.1lac DPNG users to 11.02lac. IGL plans to spend ~Rs 10bn in FY20 and add another 70-75 CNG stations in its kitty.
* Per unit EBITDA margin in Q4 was Rs 5.87/scm (- 0.016/-0.173 QoQ/YoY). For FY19, it was Rs 5.82/scm, down Rs0.07/scm YoY. Achievable level for FY20/21E is ~Rs 5.9/scm given IGL’s pricing power.
* Near-term outlook: Volume growth to continue backed by expansion in Gurugram and Rewari.
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.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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