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Mumbai: Shares of Delhi-based Indraprastha Gas Ltd (IGL) surged almost 4% on Friday morning when the Nifty 50 index was in the negative territory.
Note that the city gas distributor’s results, announced on Wednesday after market hours, show good earnings growth even as performance hasn’t exceeded Street expectations. Net profit increased 24% over the same period last year to ₹218 crore, in keeping with Bloomberg’s consensus estimates.
Profitability was helped by 12.7% increase in overall volumes. Compressed natural gas (CNG) volume rose 11.7%, whereas piped natural gas (PNG) volume grew by 12.4%. Within the PNG segment, industrial/commercial segment performed relatively better.
Further, Ebitda increased by 21% year-on-year. Ebitda is earnings before interest, tax, depreciation and amortisation and is a measure of profitability.
Even so, IGL’s Ebitda margin declined marginally year-on-year to 22.7%. “However, we didn't see any sharp expansion in Ebitda margins like we saw in peers Mahanagar Gas Ltd and Gujarat Gas Ltd who reported all-time high Ebitda margins," pointed out analysts from Jefferies India Pvt. Ltd.
Still, for IGL, outlook on margins isn’t too worrying. “IGL’s margins may remain elevated given tailwinds from (1) persisting lower spot LNG prices and (2) expected decline in domestic gas price in the second half of financial year 2020," analysts from Kotak Institutional Equities said in a report on 15 August.
On the other hand, “recent correction in price of crude and consequently, alternative liquid fuels may partly reduce margins for the industrial & commercial segment", added Kotak.
Analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd said, IGL remains a key beneficiary of the government’s/ judiciary’s focus on the pollution in Delhi NCR.
As such, IGL’s valuations suggest investors are capturing a good share of the optimism in the share price. The stock currently trades at 23.5 times its estimated earnings for financial year 2020. This could well cap meaningful upsides from a near-to-medium perspective.