Neutral Indraprastha Gas Ltd For Target Rs. 480 - Motilal Oswal
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EBITDA/scm normalizes; stronger crosswinds ahead
* IGL reported a mixed bag result, with lower than our estimate EBITDA/scm (at INR8) and higher than our estimate volumes (at 6.8mmscmd) – translating to in line EBITDA at INR4.9b (+31% YoY). CNG volumes rose 8% YoY, although down v/s pre-COVID levels of 4.92mmscmd (in 2Q-3QFY20).
* EBITDA/scm was lower than our estimate due to higher opex, despite the company taking a CNG price hike of INR0.7/kg in 4QFY21 to compensate for the increase in cost.
* During its 4QFY21 concall, ONGC stated that APM gas prices have bottomed out and would probably increase by 50-60% in the next revision (i.e. starting Oct’21) on its current base of USD1.79/mmbtu. It expects an upward revision in APM prices in Mar’22 as well. OMCs have also been in negotiation with CGDs to increase commissions to sell CNG at their ROs. We may see a hike in rentals for IGL soon.
* We have built in an EBITDA/scm of INR7/INR6.4 (unchanged) in FY22E/FY23E, taking into account the rise in rentals to OMCs as well as APM cost, which the company may not be able to pass on fully to consumers. To put things in perspective, a USD1/mmbtu change in gas prices results in INR4.2/kg increase in CNG gas cost (pre-tax).
* Petrol/diesel prices have crossed the mental threshold of INR100/liter for Indian consumers. The resolve of the CGDs to pass on increase in gas cost would be tested going forward owing to the aforementioned factors.
* OMCs and MAHGL said that transportation fuel demand is down 30% QoQ in Apr-May’21, impacted by the second COVID wave. Building in a similar number for IGL, we expect it to touch pre-COVID CNG volumes by the end of 2Q or in 3QFY22. Our FY22E/FY23E volume assumptions are revised down to 7mmscmd/7.8mmscmd (v/s 7.6mmscmd/8.5mmscmd earlier).
* Despite assuming 10-12% YoY volume growth (in line with its historical average) in the current uncertain times, the stock trades at 25x/29x FY23E consolidated/standalone EPS (v/s 25x FY23E EPS for GUJGA).
* Our estimates are subject to downward risk from the third COVID wave (resulting in a delayed recovery) and adoption of EVs. Maintain Neutral.
Mixed result with a lower than estimated EBITDA/scm
* Volumes were 4% higher than our estimate at 6.82mmscmd (+9% YoY).
* CNG volumes were 5% above our estimate at 4.87mmsmcd (+8% YoY).
* PNG volumes stood at 1.96mmscmd (+13% YoY).
* EBITDA/scm came in lower at INR8 (est. INR8.5, v/s INR8.7 in 3QFY21) due to higher opex. Opex/scm increased to INR6.3 (flat YoY, +13% QoQ) v/s our estimate of INR5.9 (assumed flat QoQ).
* Gross margin remained flat QoQ at INR14/scm. EBITDA came in line at INR4.9b (+31% YoY), with PAT at INR3.3b.
EBITDA flat YoY on expansion in EBITDA/scm
* Revenue fell 24% YoY to INR49b in FY21 owing to a 17% decline in total volumes to 5.32mmscmd.
* CNG volumes were down 22% YoY to 3.72mmsmcd.
* PNG volumes fell 5% YoY to 1.61mmscmd, supported by growth in the domestic PNG segment.
* EBITDA was down a mere 2% YoY at INR14.8b due to an expansion in EBITDA/scm to INR7.6 (v/s INR6.4 in FY20).
* PAT fell 12% YoY to INR10b (with the tax rate at 24.5% in FY21 v/s 19.7% in FY20 as the company recognized DTL benefits).
* CUGL and MNGL contributed INR442m/1,259m in 4Q/FY21 (-10%/-18% YoY).
Valuation and view – maintain Neutral
* IGL could increase its sales volume from new areas such as Rewari, Karnal, and Muzzafarnagar; Haryana City Gas; and the newly-awarded GAs in the 10th round — a) Kaithal (Haryana), b) Ajmer, Pali, and Rajsamand (Rajasthan), and c) Kanpur, Fatehpur, and Hamirpur (Uttar Pradesh).
* Introduction of EVs could dent CNG demand over the long term. Delhi’s recently revised EV policy is directed at 2W and 3W, thus impacting 3W CNG volumes (which constitute ~10% of total volumes). The management expects EV buses to ply on the roads of Delhi over the next 2-3 years, challenging current total volumes of ~25% used by CNG buses.
* The stock trades ~29x FY23E EPS of INR18 and an EV/EBITDA of 18x in FY23E. On a one-year forward P/E basis, the company trades at a 57% premium to its long term average of 18.1x. We maintain our Neutral rating.
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