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Earnings beat estimates on stronger margins

Our view

The 4QFY22 reported Ebitda at Rs 5.0bn (+2% YoY; +7% QoQ), stood better than our estimates, however in-line with consensus estimates. The beat on our estimates was driven primarily by better than estimated Ebitda per unit, even as gas sales volume stood in-line. The Ebitda per unit at Rs 7.2/scm improved QoQ, as IGL under-took price revisions to offset higher gas cost. Total gas sales during the quarter stood at 7.74mmscmd (+14% YoY; +1% QoQ), thereby leading to annual sales of 7mmscmd for the FY22 (+31% YoY). New areas viz. Rewari, Karnal, Kaithat etc contributed ~ 7% of the sales. Over FY22, IGL faced numerous headwinds in form of a) shortfall in APM allocation, b) all-time high LNG prices, c) two waves of Covid and d) increase in domestic gas price to USD 2.9/mmbtu (from USD 1.8). However, IGL not only managed growth in sales, but also maintained margins. As stock trades at 18x FY24e, one standard deviation below mean, the headwinds appear to subside as we move in FY23-24e.

Result Highlights

▪ 4QFY22 Profitability: The EBITDA and PAT for the quarter stood at Rs 5.0bn (+2% YoY; +7% QoQ) and Rs 3.6bn (+9%YoY; +17% QoQ)

▪ CNG Sales: CNG sales stood at 5.7mmscmd, which is 16% higher YoY but flat QoQ; Omicron wave in Jan’22 slowed down sales growth in the quarter. For the year CNG sales stood at 5.1mmscmd (+36% YoY), driven by recovery in mobility and also addition of 105 CNG stations. IGL plans to add 125 station over FY23.

▪ PNG Sales: PNG sales stood at 2.1mmscmd (+7% YoY; +3% QoQ) , with PNG Domestic at 0.57mmscmd(+13% YoY; +16% QoQ), PNG Industrial-Commercial at 1.02mmscmd (+3%YoY; -1% QoQ) and PNG Bulk at 0.5mmscmd (+7% YoY; Flat QoQ).

▪ Realization: Average realization during the quarter stood at Rs 34.5 (+37% YoY and+10% QoQ), driven by several price revision in CNG and PNG prices during the quarter to offset the increase in gas cost.

▪ Margins: Ebitda stood at a strong Rs 7.18/scm, QoQ 8% higher and above our estimates (Rs 6.3), but YoY lower by 10%; despite higher gas cost of Rs 21.8/scm (+87% YoY; +11% QoQ), primarily on price revision undertaken during the quarte

Valuation

We maintain our BUY rating, valuing IGL at Rs 520/sh on SOTP basis, (IGL-SA: Rs 500/sh MNGL: Rs 14.6/sh; CUGL: Rs 6.5/sh). Our TP is premised upon an earnings CAGR of ~10% (FY21-30e), for IGL-SA, driven by a ~11% CAGR(FY21-30e) in gas sales and EBITDA per unit of ~6.5/unit.

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