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IGL posted a 4% SA EBITDA beat in Q2FY24, on lower gas costs/opex. PAT too beat estimates, by 8%, due to lower ETR of 22%. EBITDA/scm at Rs8.6 was 6% above estimate. Volume growth was slower, at 3% YoY to 8.3mmscmd (up 1% QoQ, a 2% miss). Mgmt. estimates that the aggregator EV policy will impact total volume by ~15% in the LT (hitting growth); it retains exit guidance of 9mmscmd for FY24, though that for FY25 is being firmed up (8-9% ex-cabs). We taper down LT volume estimate, assuming nil TVG now, though near-tomedium term run-rate is more crucial (the current 8.5mmscmd implies 5% YoY growth in FY24). We retain FY24E EPS, building-in the higher margin, but lower FY25E EPS by 4% due to a weaker FY24 vol. base, partly offset by better unit margin. We roll-over to Sep-25E, cut our TP by 11% to Rs445, and retain HOLD.

Result Highlights

Q2FY24 standalone EBITDA/PAT rose 25%/29% YoY and 2%/22% QoQ to Rs6.6/5.3bn. CNG volume improved 3% YoY/1% QoQ (day adjusted) to 575mmscm, while PNG volume was up 3% YoY/1% QoQ, with volume for I/C down 2%/up 2% and coming in higher by 15%/staying flat for domestic. Gross margin fell 1% QoQ to Rs14.1, as unit gas cost was flat amid 1% fall in net realization. Other Expenditure rose 1% YoY/fell 3% QoQ, to Rs3.7bn. Opex/scm fell 2% YoY/4% QoQ to Rs5.5 (below estimate). Other Income was up 22% YoY/~2x QoQ, at Rs1.3bn (4% below our est). Depreciation was up 3% QoQ to Rs1.0bn, while tax rate was lower at 22.1% due to dividend income. Share of profit from CUGL-MNGL was Rs902mn in Q2FY24, up 29% YoY/8% QoQ. H1FY24 capex stood at Rs4.76bn. The Board declared an interim dividend of Rs4/share.

Management Key Takeaways

Current volume stands at ~8.5mmscmd. Volume, ex-aggregator cabs, could grow 8-9% YoY in FY25, but guidance is being firmed up. Transition of existing CNG fleet, treatment of small operators, fate of non-Delhi registered cabs, charging-infra availability and capital cost of EV conversion are areas that lack clarity. The CAQM directive on intercity buses in NCR states should expedite bus conversions for IGL. Private cars constitute 40% of CNG sales, cabs 14% (1,500k taxis), buses 20%, and autos 6%. Delhi sales comprise >60% of total sales, while NCR UP forms 20-23%. IGL’s avg conversions in Q2 stood at 15.9k/mth vs. 14.1k QoQ. Q2 volume saw 1.5-2% impact from floods and G20. Delhi CNG is 45% cheaper than petrol, and is being priced 25-30% lower in other GAs (should improve as volumes rise). Lower price of alternate fuel hit volumes for industrials. Capex guidance is maintained at Rs14-15bnpa, which may be moderated based on outlook.

Valuation We value IGL on DCF-SoTP basis. Our SOTP-DCF-based Sep-24E TP of Rs445/sh implies a 13.3x Sep-25E consol. target P/E. Key risks: Adverse pricing, margin and currency scenarios; high gas prices; open access; rate of EV adoption; project delays

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