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Strong volume growth; Outlook positive

Indraprastha Gas Limited (IGL) processes and distributes compressed natural gas and liquefied petroleum gas. The Company has been jointly promoted by Bharat Petroleum Corporation and Gas Authority of India.

* Standalone revenue rose 21.0% QoQ (+52.9% YoY) in Q3FY22, aided by robust volume growth of 5.8% QoQ to 704 SCMmn (+22.2% YoY). CNG volumes up 25.6% YoY and PNG volumes up 13.5% YoY.

* EBITDA fell 11.4% QoQ to Rs.470cr (-6.2% YoY) with EBITDA margin contracting 700bps QoQ to 19.3% (-1,210bps YoY) due to higher purchased gas cost with increased gas prices.

* We expect performance to significantly improve with strong volume growth, extensive geographical coverage, government’s initiative to increase natural gas consumption and the experience of the company’s highly qualified senior management personnel. Therefore, we reiterate our BUY rating on the stock with a rolled forward TP of Rs. 474 based on SOTP methodology.

Healthy topline growth due to robust increase in volumes

In Q3FY22, standalone revenue grew 21.0% QoQ to Rs. 2,438cr (+52.9% YoY) with robust volume growth of 5.8% QoQ to 704 Standard Cubic Meter (SCMmn) (+22.2% YoY). CNG revenue grew 21.0% QoQ to Rs. 1,546cr (+50.0% YoY) with CNG volumes at 518 SCMmn (+6.26% QoQ, 25.6% YoY). PNG revenue rose 21.6% QoQ to Rs 542cr (+61.1% YoY) with 4.5% QoQ growth in volumes to 186 SCMmn (+13.5% YoY). PNG domestic volumes increased 9.5% YoY along with PNG commercial/natural gas by 13.8%/17.1% YoY.

Higher gas prices dent margins

Gross profit down 7.9% QoQ to Rs. 831cr (-1.0% YoY), as gross margin contracted 1,070bps QoQ to 34.1% (-1850bps YoY) mainly due to higher gas prices. Domestic natural gas prices rose by 62% eff. Oct 1, from $1.79 per mmBtu to $2.9 per mmBtu. EBITDA fell 11.4% QoQ to Rs.470cr (-6.2% YoY) with EBITDA margin contracting 700bps QoQ to 19.3% (-1210bps YoY), slightly offset by lower employee spends (- 65bps QoQ, -40bps YoY) and lower other expenses (-300bps QoQ, -600 bps YoY). Subsequently, PAT fell 23.0% QoQ to Rs. 309cr (-7.9% YoY).

Roadmap ahead

GL is a well-diversified unit with parentage from GAIL, BPCL and Govt. of Delhi. With only 9 stations during its inception, today IGL holds 652 CNG stations, 18.9 lac residential connections and 7,400 industrial connections. Delhi, Noida, Kanpur, Kaithal and Ajmer have seen a huge demand in CNG sales. Ghaziabad, Haryana, Gurugram and Muzaffarnagar observes an increase in PNG demands. Approximately Rs. 1,500cr have been planned with an intention to cover existing GA of Delhi NCR and other GAs of the firm in FY22. Also, commissioning of 125CNG plants have been proposed. The company is also planning to commission 50 EV charging stations for battery swapping mode in FY22. Approximately, 10MMSCMD gas sales volume is expected to be achieved by FY24.

Valuation

We expect significant improvement in performance in future driven by strong volume growth, extensive geographical coverage and experience from the company’s highly qualified senior management personnel. Further, the Government has proposed to add 100 cities to the City Gas Distribution network as per the Union Budget 2022. With promising outlook, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 474 based on SOTP methodology.

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