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During Q4, Indraprastha Gas (IGL) reported weak sequential iterating performance due to 8.0% QoQ decline in EBITDA/scm impacted by higher opex despite GP/Scm rising 2.1% QoQ. Sequential EBITDA/PAT thus declined 6.3%/8.9%. Although CNG volumes remained flattish QoQ, 2.9% rise in QoQ volumes was supported by 15.1%/8.6% QoQ jump in PNG domestic/commercial volumes. During FY24, the company reported 4.2% YoY jump in overall volumes at 8.4mmscmd coupled with 11.7% increase in EBITDA/scm at Rs7.7/scm. Based on the rising rate of CNG conversions and growth from new GAs, the management remained confident of strong volume growth at ~9.5mmscmd in FY25E with EBITDA/scm in the range of Rs7.0/scm to 8.5/scm. Based on management guidance, we have marginally tweaked our estimates for FY25E/FY26E. Based on our revised estimates, we upgrade the stock from REDUCE to ADD with a revised SOTP based TP of Rs487 (earlier Rs431).Volumes increase QoQ, backed by conversions

PNG volumes jump QoQ while CNG volumes remained flattish

In Q4, IGL’s overall volumes rose 2.9% QoQ ay 8.7mmscmd backed by strong QoQ growth of 15.1%/8.6% in PNG domestic/ commercial volumes. CNG volumes were marginally lower by 0.4% QoQ in Q4 while CNG conversion rate remained healthy at ~15,500/month. During FY24, overall volumes rose 4.2% YoY at 8.4mmscmd supported by 4.0% YoY growth in CNG volumes and 15.5% YoY growth in PNG domestic volumes.

Higher opex impacts Q4 EBITDA/scm, healthy EBITDA/scm expansion in FY24

Higher opex in Q4 due to CSR related expenses and silver jubilee incentives, led to 8.0% QoQ contraction in EBITDA/scm at Rs6.6/scm despite 2.1% jump in gross profit/scm. Lower gas prices led to healthy expansion in FY24 EBITDA/scm rising by 11.7% YoY at Rs7.7/scm. Gas sourcing mix for the quarter remained at 72% domestic including HPHT and 28% RLNG.

Newer GAs to grow at a faster clip

IGL has experienced monthly CNG conversions at 15,500/month, up ~11% YoY. Although, Delhi, Gautam Buddha Nagar, and Ghaziabad account for 90% of its overall volumes, other GAs are growing at a faster clip with a lower base and are expected to aid volume growth. During FY24, the company added 90 CNG stations, 3.3lakh PNG connections, 187km steel pipeline and the momentum is expected to continue in FY25E with capex slated at Rs18bn p.a.

FY25E volumes slated at 9.5mmscmd, upgrade to ADD

Despite EV related challenges and declining rate of CNG driven DTC buses, management remained confident of healthy volume growth in FY25E with average volumes slated at 9.5mmscmd backed by rising CNG sales in new GAs and increase in industrial volumes. Also, EBITDA/scm guidance has been widened to Rs7.0-8.5/scm. We have considered EBITDA/scm for FY25E/FY26E at Rs8.0/scm. We expect Delhi EV policy impact to be felt gradually looking at the current CNG conversion rate. Based on our marginally revised estimates and rolling forward the DCF valuations, we upgrade the stock from REDUCE to ADD with a revised SOTP based TP of Rs487 (earlier Rs431).

Risks – Lower than expected volume growth, slowing in CNG conversion rate

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