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Volume pick-up post second wave key...

Indraprastha Gas (IGL) reported its Q4FY21 results that were slightly below our estimates. Volumes increased 9.5% YoY, 9% QoQ to 6.8 mmscmd (our estimate: 6.6 mmscmd) as CNG and industrial PNG demand recovered post relaxations in lockdown. Revenues were flat YoY at | 1550.6 crore (our estimate: | 1538 crore). Gross margins increased | 0.9/scm YoY owing to low gas costs. EBITDA increased 30.5% YoY to | 491.8 crore (our estimates: | 504 crore). Subsequently, PAT came in at | 331 crore, up 30.6% YoY (our estimate: | 350.1 crore) as the company reported lower other income.

Sales grow YoY on lower base

IGL’s volume increased 9.5% YoY to 6.8 mmscmd as CNG demand reached pre-Covid level. CNG sales volume increased 8.3% YoY, 8.7% QoQ to 4.9 mmscmd (our estimate: 4.7 mmscmd). PNG volumes grew 12.6% YoY to 2 mmscmd, ahead of estimate. Within PNG segment, domestic PNG reported 10% YoY growth while industrial PNG segment jumped 27% YoY. Second wave of Covid-19 and subsequent restrictions on movement hit the demand in the current quarter (Q1FY22E-TD). Accordingly, we revise our estimates and expect volumes to grow from Q3Y22E onwards. We expect sales volume at 6.7 mmscmd and 7.7 mmscmd in FY22E and FY23E, respectively.

Margins to stabilise at healthy levels

Gross margins in Q4FY21 were at | 13.5/scm (up | 0.9/scm YoY and down | 1/scm QoQ) weaker than estimates due to lower-than-expected realisation as well as higher gas costs QoQ. Subsequently, reported EBITDA/scm was | 8/scm, up | 1.4/scm YoY, down | 0.7/scm QoQ. IGL had taken a price hike in March to pass on increased costs. With increase in petrol and diesel prices, the competitive advantage of CNG increased substantially over the past few months. Hence, we believe IGL will be able to pass on higher costs to customers in future. Going forward, we expect gross margins at | 13.7/scm and |13.6/scm for FY22E and FY23E, respectively, with EBITDA/scm at ~| 8/scm.

Valuation & Outlook

The environmental concerns in Delhi had brought forth the urgency of using cleaner fuels, putting the company in a sweet spot. IGL has a unique identity of a company with a rare mix of volume growth and strong margins. While sales volume recovered in Q4FY21, sales dipped in the current quarter. Sales volume is expected to recover in Q2FY22E with easing restrictions. We maintain HOLD recommendation on the stock. We value standalone IGL at | 549/share (25x FY23E EPS) and investment in Central UP Gas (CUGL) and Maharashtra Natural Gas (MNGL) at | 46/share to arrive at an unchanged target price of | 595.

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