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No major surprises

We maintain Accumulate on Indraprastha Gas (IGL) on revised FY21-23E and 0.7% increase in our DCF-based blended target price (TP) of Rs571. IGL reported consolidated 4QFY21 PAT at Rs3.75bn, up 29% YoY and was 2.45%/2.9% beat vs NBIE/street estimate. Revenue was a tad lower at Rs15.5bn vs NBIE estimate of Rs15.57bn. Total gas volume at 614mscm was just 0.5% below NBIE estimate. Gross/EBITDA margin beat our estimates by 36bps/157bps as gas cost/opex came in below our estimates. CNG volume was down 2.6% while PNG volume was up 5.2% vs our estimates.

Our Accumulate rating is based on: (i) muted risk-reward at current valuation (ii) the capex on infrastructure expansion, which could generate long-term growth, but poses interim pressure on RoCE in the next 1-2 years and (iii) the PNGRB’s new CGD code poses risk to returns on open access volume and the capex for future growth, which will also attract open access provision.

Attractive growth in CNG in IGL’s Delhi market is also likely to entice competition once open access in notified by the PNGRB. The price risk of LNG in industrial/commercial PNG (15% of volume) mars the quality of earnings. IGL still remains the better city gas distribution (CGD) pick vs. MGL for its far superior growth profile and geographic spread of its CGD footprint.

4QFY21 revenue fell a tad YoY to Rs15.5bn: IGL’s blended realization came in at Rs25.3/scm, down 7.8% YoY due to 8.5% YoY decline in CNG realisation and 5% YoY fall in PNG realisation. The share of CNG in 4QFY21 total revenue was 71.3% vs. 72.1% YoY.

EBITDA margin surges by 745bps to 31.7%: EBITDA came in at Rs4.9bn, up 30.5% YoY while unit EBITDA margin rose from Rs6.6/scm to Rs8/scm of gas sold YoY. This was aided by 6.4% YoY increase in unit gross margin to Rs13.6/scm as gas cost declined by 20.2% YoY to Rs11.6/scm.

PAT up by 36.7% YoY at Rs3.31bn: The share of JVs/associates PAT fell by 9.2% YoY and by 6.1% QoQ to Rs441mn. PBT rose by 29.5% YoY to Rs4.4bn. Consolidated PAT was up 29% YoY at Rs3.75bn.

Key catalysts for IGL: (i) Policy advocacy favoring gas as a green fuel, favorable gas allocation/pricing and improving competitiveness vs. alternative fuels (ii) IGL also has a diversified CGD portfolio that augurs well for its long-term growth, including (a) 50% stake in two growing profitable CGD JVs - MNGL and CUPL and (b) 4 new GAs where the company is developing CGD networks (iii) preference for personal mobility is likely to sustain IGL’s CNG growth in Delhi on account of New CNG car models and conversion of existing cars to CNG. Risks: Slower-than-expected growth in volume in existing areas and scale issues/delay in new GA’s; increase in gas cost and competition from EVs/other renewable fuels.

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