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IGL’s Q4FY23 SA EBITDA/APAT is Rs4.66/3.30bn, down 7/2% YoY and up 9/19% QoQ. Earnings missed our estimates by 2-3%, on slightly lower EBITDA/scm at Rs6.3 (up 9% QoQ). Total gas sales volume was in-line, at 8.25mmscmd, up 7% YoY/2% QoQ (CNG/PNG up 8%/2% YoY). Mgmt restated its volume guidance of 9/10mmsmcd for FY24/25E, with target EBITDA/scm of Rs7.5-8 supported by stable gas & alternate fuel prices. Demand is expected to be led by new GAs, which will attribute 50% of the Rs15-16bn pa capex ahead. IGL received 87%/5% APM+/HP-HT gas under the priority sector in Q4, with the balance being LNG. We raise FY24E/25E EPS by 5%/7%, building-in better margins, with revised DCF-based Mar-25E TP of Rs500/sh. Given limited stock upside, we downgrade IGL to HOLD from Buy. Volume growth is the key trigger.

Result Highlights

CNG volume rose 8% YoY/1% QoQ (day adjusted) to 550mmscm, while PNG was up 2% YoY/5% QoQ with I/C flat/up 3% and domestic up 9/11%. Gross margin expanded by 6% QoQ to Rs12 (a 4% miss), as gas cost fell 2% amid flat realizations. Employee cost rose 21% YoY/7% QoQ to Rs467mn, while Other Expenditure rose 9% YoY/2% QoQ at Rs3.82bn. Opex/scm rose 4% YoY/3% QoQ to Rs5.8 (4% below est). Other Income was up 51% YoY/17% QoQ at Rs654mn. Share of profit from CUGL-MNGL was Rs678mn in Q4FY23, up 21% QoQ/down 6% YoY, resulting in Consol. EPS of Rs5.7 in Q4FY23. FY23 SA EBITDA/PAT rose 8/10% YoY to Rs20.4/14.5bn, with volume up 16% YoY at 8.09mmscmd, while EBITDA/scm fell 6% to Rs6.9. Capex was Rs11.9bn. The Board did not recommend any final dividend, as 2 interim dividends totaling Rs13/sh were already declared (Rs10 was special), implying 63% payout in FY23 vs. 25-30% in FY21/22.

Management KTAs

IGL plans adding +1mmscmd volume p.a. and targets 9/+10mmscmd in FY24E/25E, with EBITDA/scm at Rs7.5-8, which can enhance to Rs9 if gas costs fall. Non NCR GAs contribute 15% of volumes which, going ahead, could increase to 40%. Unified tariff impact is Rs1.15/scm. FY24 capex target is Rs16bn, with 100 CNG station additions (791, as of FY23-end), while capex guidance is Rs15-16bnpa for the next 3-4 years of which 50% would be in new GAs. IGL’s term LNG contracts are now being supplied at normal levels, with 50% being HH/crude-linked at 1/1.1mmscmd. Gas sourcing mix in Q4FY23 was 87%/5%/5%/3% of APM+/HP-HT/Term LNG/Spot LNG. Current monthly conversion run-rate is 13-14,000, but should pick up from here, with CNG now 46%/26% cheaper than petrol/diesel. IGL is studying the recent PNGRB order on the Faridabad and Gurugram GAs which it could contest. Dividend payout should be 25-30% going ahead.

Valuation

We value IGL on a DCF-SoTP basis. Our Mar-24E TP of Rs500/sh (Rs485 earlier) implies a 15.3x Mar-25E consolidate target P/E. Key risks: Adverse pricing, margin and currency scenarios; high gas prices; open access; EVs; project delays.

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