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Weak performance on lower EBITDA spreads; overall volumes were in line

Our View

Indraprastha Gas Limited (IGL) reported a poor Q4 FY24 performance, with Rs5.2bn EBITDA increasing by 12.1% YoY but falling short of our estimates. The Rs3.8bn PAT demonstrated 16.1% YoY growth but experienced a 2.4% QoQ decline. Despite meeting volume expectations, higher gas costs impacted EBITDA margins, signalling challenges. With the stock trading at 17.1x/15.7x FY25e/26e PER, we lower our rating to an ADD from BUY earlier with a target price of Rs 500/share.

Result Highlights

* Performance. The Rs5.2bn EBITDA (below our and consensus estimates on lower EBITDA spreads) was up 12.1% YoY and down 7.4% QoQ, while the Rs3.8bn PAT was up 16.1% YoY but down 2.4% QoQ, lower than our estimates of Rs 4.3bn. Overall weak performance, despite in line volumes to our estimates, the EBITDA margins were weaker on higher opex and marginally higher gas cost.

* Volumes at 8.73mmscmd was up 5.7% YoY, 2.9% QoQ. CNG volumes were weaker at 6.37mmscmd (our est. 6.51), up 4.3% YoY, 0.7% QoQ. D-PNG volumes grew strong and were 0.72mmscmd, up 15.3% YoY, 16.3% QoQ. Industrial and commercial sales were 1.14mmscmd, up 11.5% YoY and 9.8% QoQ. Haryana sale volumes were 0.50msmcmd, stable at peak levels.

* The gross margin was Rs13.1/scm, up 9.2% YoY and 1.5% QoQ. The YoY increase was due to a revision is APM pricing formula which reduced the gas prices, while sequential decline was on price cuts and possible decreased share of APM, also higher share of sourcing HP/HT and term.

*  Opex, at Rs6.57/scm, was up 13.9% YoY and 14.8% QoQ. This comes in as a surprise which led to decrease in EBITDA spreads.

* The EBITDA spread, at Rs6.58/scm, was up 4.8% YoY, but down 9% QoQ (below our estimate of 7.86) weaker on higher opex and marginally higher gas cost.

* The other income at Rs 1.1bn was up 67.2% YoY and 99.1% QoQ on possible dividend income from its JVs– CUGL and MNGL.

* JV contribution. The contribution of CUGL and MNGL to Indraprastha’s PAT was Rs815.2mn in Q4 up 20.3% YoY from Rs677.6mn in Q4FY23 and down 4.9% QoQ.

* FY24 performance: EBITDA/PAT was at Rs 23.7/17.5bn vs Rs 20.4/14.5bn last year. The volumes at 8.43mmscmd (vs 8.09 last year), of which CNG was at 6.28mmscmd vs 6.05. The EBITDA spread was at Rs 7.7/scm vs 6.9 last year. The contribution of CUGL and MNGL to Indraprastha’s PAT was Rs 3.4bn vs Rs 2.5bn.

Valuation

We expect an 6% volume CAGR over FY24-FY26 with a spread of Rs7.5–7.6/scm. The stock trades at 17.1x/15.7x FY25e/26e PER. We value the stock on a PER basis, assigning an 15x multiple and lowering our rating to an ADD from a BUY earlier arriving at a target of Rs500 (incl. value from investments in MNGL, at Rs70/sh and, in CUGL, atRs22/sh)

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