IGI Logo

Weak quarter led by margin decline; volumes remain stable

* IGL misses our EBITDA estimate, driven by higher-than-expected gas costs with EBITDA/scm at INR7.1 (down 11% YoY and down 18% QoQ). Total volumes stood at 8.1mmscmd (+12% YoY, +3% QoQ) with an all-time high CNG volumes of 6.1mmscmd (+15% YoY) and modest PNG volumes of 2mmscmd (+3% QoQ).

* However, the challenges remain overwhelming for IGL:

* With the rise in domestic gas prices to USD8.6/mmBtu for 2HFY23, CGDs will have to take a CNG price hike of ~INR4/kg (excluding taxes) per USD1/mmBtu rise in gas price to maintain margins around its current levels.

* Aggregators account for 30-40% of total CNG sales for IGL and the onslaught of EVs may challenge volume growth in medium-long term.

* Although the company has already taken a few CNG price hikes in FY23 till date, we expect further price hikes in 1HFY24 even as the Government has appointed Dr. Kirit Parikh Committee to review domestic gas pricing.

* The narrowing of CNG and auto fuel price gaps is likely to reduce CNG conversions and is negative primarily for IGL.

* We build in a volume growth of 11%/11% for FY23E/FY24E to 7.8 mmscmd/ 8.6mmscmd, with EBITDA/scm normalizing to INR7.2/6.5 for FY23/24E.

* The stock has corrected 20% CY23’YTD on the back of the aforementioned concerns. On a one-year forward P/E basis, the company trades in-line with its long-term average of 18.9x. We reiterate our Neutral rating on the stock.

Miss on both volumes and EBITDA; revenue in-line

* Total volumes were below our estimate at 8.09mmscmd (up 12% YoY and up 3% QoQ)

* CNG volumes stood at 6.09mmscmd (up 15% YoY and up 3% QoQ) while PNG volumes stood at 2mmscmd (up 3% YoY and up 2% QoQ)

* EBITDA/scm came in at INR7.1 (v/s our est. of INR8.8 in 2QFY23)

* Gross margin came in at INR12.7/scm (v/s INR14.3 in 1QFY23)

* Opex was at INR5.6/scm (v/s INR5.7 in 1QFY23)

* Reported EBITDA stood at INR5.3b (down 1% YoY and down 15% QoQ), with PAT at INR4.2b (up 4% YoY and flat QoQ)

* IGL’s share in CUGL and MNGL added INR697m to its consol. profit (up 30% YoY and up 15% QoQ) in 2QFY23

* In 1HFY23, EBITDA was up 26% YoY to INR11.5b, with EBITDA/scm of INR7.8 (flat YoY). PAT was at INR8.4b

* Growth in EBITDA was primarily led by volumes, which were up 27% YoY at 8mmscmd with CNG at 6mmscmd (+34% YoY) and PNG at 2mmscmd (up 10% YoY)

* IGL’s share in CUGL and MNGL added INR1.3b to its consol. profit (up 49% YoY)

Valuation and view

* 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).

* The stock trades at 20x/25x FY24E standalone/consolidated EPS of FY24E. We value the stock at 17x FY24E standalone EPS and arrive at our TP of INR406. We reiterate our Neutral rating on the stock.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer