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In line EBITDA performance on strong volumes but subdued EBITDA spreads

Indraprastha Gas Limited (IGL) reported an in line Q3FY25 performance, with Rs3.64bn EBITDA being lower 35.5% YoY and 32.1% QoQ. The Rs2.86bn PAT saw 27.1% YoY and 33.7% QoQ decline. Despite beating volume expectations, the realizations were lower than estimated and an elevated gas cost, especially due to lower APM allocation led to eroding EBITDA margins. We maintain an ADD rating on the stock with a revised target price of Rs 438/share (earlier Rs 462).

Result Highlights

* Performance: The Rs3.64bn EBITDA (in line with our and consensus estimates on weaker EBITDA spreads), was down 35.5% YoY and 32.1% QoQ, while the Rs2.86bn PAT was down 27.1% YoY and 33.7% QoQ, higher than our estimate of Rs 2.2bn on higher other income. In line EBITDA spreads, outpaced volumes growth on track to meet the company’s target exit of ~9.5mmsmcd by Q4FY25.

* Volumes at 9.11mmscmd was up 7.4% YoY and 1% QoQ. CNG volumes were at 6.7mmscmd (our est. 6.6), up 5.9% YoY but down 1.1% QoQ. D-PNG volumes were at 0.72mmscmd (at peak), up 16.8% YoY and 11.3% QoQ. Industrial and commercial sales were at 1.19mmscmd, up 14.4% YoY and 8.8% QoQ, achieving new highs. Haryana sale volumes were 0.50msmcmd, stable at peak levels.

* Gross realization at Rs44.9/scm, down 1.6% YoY but up 0.6% QoQ. IGL has implemented hikes of Rs1.5-4/kg in regions outside Delhi but has not made any adjustments in Delhi, which accounts for ~70% of its sales volumes. This decision may be influenced by the upcoming elections in the region. The gross realizations are lower than our estimates possibly on higher discounts in CNG segment.

* The gross margin was Rs9.73/scm, down 24.8% YoY and 18.5% QoQ. The YoY decrease was due to lower realizations, decreased share of APM, also higher share of sourcing HP/HT and term which are more expensive versus the APM. Opex, at Rs5.39/scm, was down 5.7% YoY and 1.5% QoQ. The EBITDA spread, at Rs4.34/scm, was down 40% YoY and 32.8% QoQ (in line with our estimate of 4.46) despite lower realizations and marginally lower than estimated gas cost.

* APM Allocation shortfall: During Q3FY25, the APM gas allocation for the CNG segment was reduced twice, impacting the company's gas sourcing strategy. The reduction from over 70% to 37% was implemented. However effective 16th Jan'25, the APM gas allocation was increased back to 51%, a positive development expected to alleviate sourcing pressures in the coming quarters.

* The other income at Rs 1,288mn was up 134% YoY but down 13.8% QoQ possibly on dividend income from its subsidiaries – MNGL and CUGL. JV contribution: The contribution of CUGL and MNGL to Indraprastha’s PAT was Rs819.1mn in Q3, down 4.5 YoY and 9.5% sequentially.

* 9MFY25 performance: EBITDA/PAT was at Rs 14.8/11.2bn vs Rs 18.6/13.6bn last year. The volumes at 8.92mmscmd (vs 8.33 last year) up 7.1% YoY, of which CNG was at 6.65mmscmd vs 6.25 (up 6.3% YoY). The EBITDA spread was at Rs 6.04/scm vs 8.14 last year.

* The company has declared 2nd interim dividend of Rs 4/share (earlier Rs5.5/share in Q2), ~60% dividend payout on 9MFY25 earnings (pre bonus). Additionally, the company has declared a 1:1 Bonus issue with the record date of 31st Jan’25.

Valuation

The stock trades at 18.7x/16.2x/14.7 FY25e/26e/27e PER and at 15.1x/13.2x/11.9x excluding investments in CUGL and MNGL. We maintain our ADD rating on the stock, valuing the stock on a PER basis, assigning a 15x multiple with a revised target of Rs438 (incl. value from investments in MNGL, at Rs54/share and, in CUGL, at Rs18/share).

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