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Result Highlights ‐Gas sales recover in 4Q; margins strong

* 4QFY21 Profitability:  Reported EBITDA and PAT stood at Rs 4.9bn (+30% YoY;   ‐2% QoQ) and Rs 3.3bn (+30% YoY; ‐1% QoQ). The YoY growth stemmed from weaker base quarter, as strict lockdown in Mar’20 had severely impacted gas sales. The sequential impact on profitability on the other hand, stemmed from 11% QoQ increase in gas cost, as LNG prices spiked during the quarter.

* FY21 profitability: The EBITDA and PAT stood at Rs 14.8bn (‐2.5% YoY) and Rs 10bn (‐12% YoY). Even as Covid pandemic impacted demand, leading to 17.3% YoY lower gas sales, an 18.3% YoY improvement in unit margins, helped shore up profitability, keeping in rather even keel in a difficult year.

* Gross Margin: The gross margin for the 4Q stood sequentially lower at Rs 13.6/scm (3Q: Rs 14.6/scm), impacted by 11% QoQ increase in gas cost, but nevertheless stood higher by 6% on YoY basis. The gross margin for the FY21 stood 17% YoY higher at 13.9/scm on 27% YoY lower gas cost at Rs 11/scm. Weaker domestic gas price, along with tepid LNG prices for most of the year (before the sudden spike in 4QFY21) aided margins.

* EBITDA per unit: The EBITDA per unit at Rs 8/scm stood sequentially weaker by 8%, but still higher by 20% on YoY basis. As increase in gas cost was partially offset by 9% YoY& 4.4% QoQ lower per unit operating costs. The per unit EBITDA for FY21 stood 18% YoY higher at Rs 7.6/scm.

* Gas Sales: The total gas sales during the quarter stood at 6.82mmscmd (CNG: 4.87mmscmd; PNG: 1.96mmscmd), which is about 9% higher on YoY and QoQ basis. The annual gas sales at 5.33mmscmd (CNG: 3.72mmsmcd & PNG: 1.61mmscmd) nevertheless stood 17% lower YoY primarily on weaker CNG sales (‐22% YoY).

* Infrastructure development: Despite the challenges in aftermath of Covid‐19 pandemic, IGL invested over Rs 10bn, in  FY21, adding a) 57 new CNG stations, b) 1934km of steel and mdpe pipeline, c) 0.31mn domestic consumers, d) 1121 industrial and commercial consumers and e) more than 135000, CNG vehicles.

View & Valuation

The 4QFY21 earnings stood broadly in‐line with our estimates, even as it missed street estimates. The FY21 was marked by weaker sales but stronger margins, which helped shore up earnings. We believe that we might continue to see relatively stronger margins, going ahead, on account of considerably higher Petrol & Diesel prices (alternate competing fuels).   

The second wave of Covid‐19, has to an extent (if not completely) derailed the recovery in gas sales. The gas sales over Apr‐May’21 is believed to be lower by ~25‐30% (compared to FY20), which though better than a 56% decline over Apr‐Jun’20, but is still directionally weaker, thereby slowing the momentum seen in 2HFY21 and delaying an expected recovery in sales over FY22. That said, as the situation normalizes on backs of on‐going vaccination drive, the sales and vehicle conversion should recover.  

We maintain our ADD rating on IGL, with a TP of Rs 595/sh, as we expect CGD to be a multi‐year compounding story, in‐light of GoI’s push for development of CGD infrastructure and higher adoption of natural gas as a cleaner fuel source.  

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