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Indraprastha Gas Limited (IGL) is a company limited by shares domiciled in India and was incorporated on December 23, 1998 under the erstwhile Companies Act, 1956. IGL is in the business of city gas distribution presently operating in the National Capital Territory of Delhi including adjoining areas of Noida, Greater Noida, Ghaziabad, Gurugram, Meerut (except area already authorised), Shamli, Muzaffarnagar, Karnal and Rewari.

Investment Rationale

* Higher CNG utilization to scale up Revenue: IGL is expected to continue it growth trend in both CNG and PNG categories in the National Capital Region (NCR), Gurugram and new its geographical areas. Pre-COVID, CAGR in total volumes surged at 12.6% during FY16-20 versus 4.2% during FY20-22. The volumes CAGR expanded at 11.5%/16.0% for CNG/PNG over FY16-FY20. The conversion of private non-CNG vehicles to CNG is a potential growth driver for the CNG segment.

* Recent Price Hikes to Aid in Improving Operating Margins: To protect Operating margins Post volatile momentum in Natural gas prices, IGL raised the prices of CNG 11 times in 2022. The price were at Rs 53/kg at the start of 2022 to Rs 78.6/kg currently. This hikes to help company in improving operating margins, however Due to the consistent of price hikes in CNG, the difference between operational cost of CNG operated vehicle and Petrol/diesel operated vehicle is shrinking.

* Expanding Network of PNG connections: PNG connections are widely used by households and industrial business ventures, IGL aggressively adding new households in addition to industrial and commercial customers. In FY22, IGL added highest-ever 375,000 PNG domestic connections compared with 315,000 in FY21 and average 210,000 connections over FY18-FY20. Of the total, new Gas comprised nearly 44% of the connections. We expect company to continue its aggressive network additions.

* Outlook and Valuations: We estimate a 06% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 12.4 for FY 25E earnings. We value it with a earnings multiple of 15x to FY25 earnings estimate which results per share value of Rs 512. We recommend BUY on IGL at CMP of Rs. 410 with Target price of Rs. 512 (25%).

Technical View

* While looking at the broader picture we can spot that the Prices have shown a bounce from the Bullish trend line which prices respected from February 2017.

* Prices in the first week of August 2022 gave a breakout from the Symmetrical triangle pattern which indicated beginning of the trend to the upside.

* On the Daily timeframe prices are above 200 Days EMA which confirms the reversal to the upside.

* RSI on the weekly timeframe has shown a breakout too, which reflects the strong momentum of the prices.

* Going ahead we expect the prices to go higher till the level of 500.

* The stoploss for the setup is 370.

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