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*Indraprastha Gas (IGL) reported in-line EBITDA of INR4.7b in 4QFY23, with EBITDA/scm at INR6.3 (down 13% YoY/up 9% QoQ). Volumes increased 7% YoY to 8.3mmscmd. The management expects volumes to reach 9mmscmd in FY24, driven primarily by growth from new GAs. CNG conversions are also expected to increase, driven by the stability in CNG prices and the introduction of new CNG vehicle models by OEMs. The management highlighted that buses account for ~20% of CNG volumes (DTC/DIMTS buses accounting for half of it), while taxis & three wheelers account for 30% of volumes. Hence, aggressive EV policies by the Delhi government may challenge volume growth in the medium-long term. Although the management has guided for an EBITDA/scm of INR7-8, we model a lower EBITDA/scm of ~INR6 in our base case, considering likely margin pressure due to high proportion of industrial component in incremental volumes. We value the stock at 14x FY25E adj. EPS and add value of JV at 25% holding company discount to arrive at our TP of INR345. We reiterate our sell rating on the stock. Stricter mandate on the adoption of natural gas by industries/ vehicles remains the key risk to our call.

EBITDA in line; beat on PAT

* IGL’s total volumes were in line with our estimate at 8.26mmscmd (up 7% YoY, up 2% QoQ) in 4QFY23.

* CNG volumes stood at 6.11mmscmd (up 8% YoY, up 1% QoQ).

* PNG volumes were at 2.14mmscmd (up 3% YoY, up 5% QoQ) in 4QFY23.

* EBITDA/scm came in line with our est. at INR6.3 (v/s INR5.7 in 3QFY23).

* Gross margin came in at INR12/scm (v/s INR11.3/scm in 3QFY23).

* IGL’s opex remained flat QoQ at INR5.8/scm during the quarter.

* Resulting EBITDA was in line with our est. at INR4.7b (down 7% YoY, up 9% QoQ).

* PAT was above estimate at INR3.3b (est. INR2.9b, down 9% YoY, up 19% QoQ), due to higher-than-estimated ‘other income’ in 4QFY23.

* IGL’s share in CUGL and MNGL added INR678m to its consolidated profit (up 21% YoY, down 6% QoQ) in 4QFY23.

* For FY23, EBITDA was up 8% YoY to INR20.4b, with EBITDA/scm of INR6.9 (don 7% YoY). PAT stood at INR14.5b.

* Growth in EBITDA was led by volumes, which were up 16% YoY at 8.1mmscmd, 

* with CNG at 6.1mmscmd (up 20% YoY)

* PNG at 2mmscmd (up 6% YoY).

* IGL’s share in CUGL and MNGL added INR2.5b to its consolidated profit (up 32% YoY).

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