Q1 profit collapsed on volume & margin plunge
Indraprastha Gas’ (IGL) Q1FY21 standalone and consolidated EPS plunged 85- 86% YoY hit by fall in volumes and margins due to lockdown. Q1 earnings fall was steeper than our estimate despite volume decline being less steep due to big disappointment on EBITDA margin. EBITDA margin contracted despite higher gross margin as lower volumes meant a surge in per-unit opex. To factor-in the disappointment in Q1 and continued lockdown, we cut FY21E-FY22E EBITDA margin estimates by 22%-7% and volume estimates by 3%-1%, which has led to 22%-7% cut in FY21E-FY22E EPS and 10% cut in target price to Rs310/share (25% downside). Margin decline may be earlier and steeper than estimated if competition is allowed and gas used for CNG is deregulated. Reiterate SELL.
* Q1FY21 EPS nosedived on collapse in volumes and margins: Q1FY21 standalone EPS was down 85% YoY hit by plunge in sales volumes by 57% YoY and in EBITDA margin by 46% YoY. IGL’s gross margin was up 19% YoY at Rs13.5/scm, but fall in volumes meant opex was up 99% YoY at Rs10.1/scm and EBITDA margin was down 46% YoY at Rs3.38/scm. Hit by lockdown, Q1FY21 CNG volumes were down 66% YoY and industrial & commercial volumes down 40% YoY. Domestic PNG volumes were up 39% YoY. Q1FY21 consolidated EPS plunged 86% YoY as share of profit of associates crashed by 82% YoY.
* Cut FY21E-FY22E EPS and target price: To factor-in the Q1 disappointment, we cut FY21E-FY22E EBITDA margin by 22-7% to Rs5.05-5.88/scm from Rs6.45- 6.32/scm earlier. To factor-in the continued restrictions in Q2, we have cut FY21EFY22E volume estimates by 3-1% to 5.09-6.48mmscmd from 5.24-6.53mmscmd earlier. These changes have meant 22-7% cut in FY21E-FY22E EPS and 10% cut in target price to Rs310 (28% downside). We are now assuming 34% YoY fall in FY21E EPS, but 50% YoY rebound in FY22E EPS. Reiterate SELL.
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