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Indraprastha Gas (IGL) reported a strong QoQ performance with EBITDA/ PAT surging 38%/ 31%. Although, volumes remained flattish sequentially at 746mmscm, lower gas prices led to gross margin expansion thus elevating operational performance. Average realisations declined 8.0% QoQ while were up 2.6% YoY at Rs45.7/ scm. EBITDA/ scm expanded QoQ from Rs6.3/ scm to Rs8.6/ scm, remaining flattish YoY. Flattish YoY EBITDA/ scm led to 4.0% increase in operating profit at Rs6.4bn (6.2bn). The company reported 8.5% YoY increase in PAT at Rs5.2bn (Rs4.8bn) supported by higher share of profit from associates and higher other income. Although, IGL has reported EBITDA/ scm of Rs8.6/ scm, we have conservatively considered Rs7.4/scm and Rs7.6/scm for FY24E and FY25E respectively. We have tweaked our estimates marginally and maintain Add rating with a SOTP based revised TP of Rs523 (earlier Rs518). Flattish QoQ volumes

IGL reported sales volumes of 746mmscm from 743mmscm in Q4FY23 while volumes were up 3.9% YoY. CNG volumes rose 4.0% YoY and 2.1% QoQ at 561mmscm. PNG domestic and commercial volumes were impacted QoQ and were lower 6.3% and 5.2% respectively. Due to lower natural gas prices, average realisations declined 8.0% QoQ at Rs45.7/ scm vs. Rs49.6/ scm in Q4FY23 while remaining up 2.6% YoY.

Gross margins expand QoQ, lead to EBITDA/ scm expansion

During Q1, IGL’s gross margin/ scm expanded 19.4% QoQ to Rs14.4/ scm vs Rs12.0/ scm in Q4FY23 benefited from fall in gas prices. YoY though, gross margin/ scm expanded marginally. Gross margin expansion trickled down to EBITDA/ scm expansion, with 37.2% QoQ surge in EBITDA/ scm at Rs8.6/ scm vs. Rs6.3/ scm in Q4FY23. YoY EBITDA/ scm remained flattish. IGL’s gross profit during the quarter rose 4.9% YoY and 19.9% QoQ at Rs10.7bn while operating profit surged 4.0% YoY and 37.8% QoQ at Rs6.4bn. IGL reported better than EBITDA growth in PAT due to higher other income coupled with higher profit from associates. PAT for the quarter thus rose 8.5% YoY and 31.3% QoQ at Rs5.2bn

Volume growth remains the key

Although IGL reported robust overall Q1 performance, sales volumes remained flattish on a sequential basis. Improvement in financial performance was due to lower gas prices leading to margin expansion. We believe IGL’s future performance is primarily hinged upon volume growth. We expect high EBITDA/ scm in Q1 to normalise in coming quarters and hence have conservatively considered Rs7.4/scm and Rs7.6/scm for FY24E and FY25E respectively. Upping our FY24E and FY25E earnings marginally by 1% and 2% respectively, we have valued IGL’s standalone business at Rs441 using DCF methodology. We have valued IGL’s 50% stake in MNGL and Central UP Gas at ~Rs82 (18x FY25E EPS). The stock is trading at 20.8x/ 19.1x FY24E/ FY25E EPS of Rs23.8/ 25.8. We maintain Add rating on the stock with a SOTP based TP of Rs523 (Rs518). Risks – Slower than expected volume recovery, higher gas prices, significantly higher thanks expected EBITDA/ scm

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