Hold Indraprastha Gas Ltd For Target Rs.402 By PL Capital
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Strong volume growth, miss on margins
Quick Pointers:
* Strong volume growth of 8.7% YoY led by 7% growth from Delhi and 29% from newer GAs
* EBITDA/scm of Rs6.5 due to higher sourcing cost We upgrade the rating from ‘SELL’ to ‘HOLD’ post correction in stock price with a TP of Rs402 based on 15x avg FY26-27E standalone EPS and adding the value of investments. Indraprastha Gas (IGL) reported lower-than-expected Q2 results with EBITDA of Rs5.4bn (down 7.9% QoQ, PLe: Rs6.1bn, BBGe: Rs6.3bn) and PAT of Rs4.3bn (PLe: Rs4.4bn, BBGe: Rs4.7bn), up 7.4% QoQ aided by higher other income. While volume growth came in strong at 8.7% YoY, EBITDA/scm was lower than expected at Rs6.5, down 12.8% QoQ. The company is evaluating various sourcing options post the cut in APM allocation, and some price hike can be expected. Going ahead, we build in a conservative volume growth CAGR of 7% over FY24-27E with an EBITDA/scm of Rs6.5 for FY26/27E. The stock is currently trading at 17.2x/15.9x FY25/26 EPS. Upgrade to ‘HOLD’.
* Operating performance declines sequentially: Gross margin/scm came in at Rs11.9, down by Rs1.3/scm QoQ. EBITDA came in at Rs5.4bn, down 7.9% QoQ, with an EBITDA/scm of Rs6.5 (below PLe of Rs7.5). Other income rose 105.5% QoQ to Rs1.5bn. Subsequently, PAT grew 7.4% QoQ to Rs4.3bn. On a YoY basis, EBITDA/PAT declined 18.4%/19.4%. Going ahead, in line with the company’s guidance of EBITDA/scm of Rs6-7, we build in an EBITDA of Rs6.8/6.5/6.5/scm for FY25/26/27E.
* Volume grows 8.7% YoY: Total sales volume came in above our estimates at 9mmscmd, up 8.7% YoY (PLe: 8.8mmscmd). The strong volume growth was aided by 7% growth from Delhi and 29% growth from newer GAs. CNG volume grew 8.6% YoY to 6.8mmscmd (PLe: 6.5mmscmd). PNG volume increased by 8.9% YoY to 2.2mmscmd (PLe: 2.3mmscmd). On a QoQ basis, CNG volume grew by 5.1%, while PNG volume grew 2.7%. The company has guided for an exit volume of 9.5mmscmd for FY25 with 8-10% volume growth for FY26. However, we build in a conservative volume growth of 7% CAGR over FY24- 27E to ~10.4mmscmd.
* Concall Highlights: 1) Gautam Buddha Nagar is growing at 11%, Ghaziabad at 20%, other parts of UP at 40%, Haryana at 21%, Gurugram at 12%, Karnal at 29-30%, and Ajmer at 95% (on a low base). 2) Capex incurred in H1 was Rs5bn, while guidance for FY25 is Rs17bn. 45-50% capex would be incurred on Delhi NCR. 3) IGL has one LNG station in Ajmer and plans to commission 3 new LNG stations by FY25 end. It targets to set up 50 LNG stations in next 3-5 years. 4) IGL has not seen any major impact due to Delhi government’s EV policy. 5) IGL is sourcing 3.12mmscmd of R-LNG and 0.6mmscmd of HPHT
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