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Indraprastha Gas (IGL) reported subdued performance in Q3FY24 impacted by higher gas cost leading to QoQ decline in EBITDA/ scm. IGL’s revenues rose 2.8% QoQ while EBITDA/ PAT declined 14.4%/ 14.0%. Supported by PNG domestic and commercial volume growth, overall gas sales volumes increased 2.2% QoQ at 8.5mmscmd. However, EBITDA/ scm declined 16.2% QoQ at Rs7.2/ scm from Rs8.6/ scm. Management guided ~9mmscmd exit rate in Q4FY24E and has already touched the number in recent days. It also guided for ~10mmscmd exit rate for FY25E with EBITDA/ scm hovering between Rs7.5-8.0/ scm (tilted towards Rs8.0/scm). Although, volume growth in Delhi is expected to remain lower at 2-3%, other GAs are growing at much faster clip and are expected to support overall volume growth. Based on 9MFY24 numbers and management guidance, we have lowered our FY24E/ FY25E/ FY26E earnings estimates by 4.6%/ 2.6%/ 3.7%. Over the past three months, the stock has risen ~10%. Based on our revised estimates, we downgrade the stock from Buy to Reduce with a revised SOTP based TP of Rs431 (earlier Rs447).

Volumes increase QoQ, backed by conversions

During Q3, IGL’s overall volumes grew 2.2% QoQ at 780mmscm vs 764mmscm primarily driven by 7.1%/ 6.0% growth in PNG domestic/ commercial volumes. CNG volumes increased 1.3% QoQ supported by overall conversions of ~15,000 vehicles per month, ~6,500 private cars, ~5,500 commercial vehicles, and ~3,000 retrofits.

Higher gas cost impacts QoQ EBITDA/ scm

Due to lower APM gas allocation, gas cost rose 4.7% QoQ leading to lower EBITDA/ scm. During the quarter, IGL received ~78% APM gas, ~4% HPHT, and the rest was sourced from term and spot LNG. Higher gas cost and higher opex led to 16.2% QoQ decline in EBITDA/ scm at Rs7.2/ scm from Rs8.6/ scm. EBITDA thus declined 14.4% QoQ at Rs5.6bn and consequently PAT declined 14.0% QoQ at Rs4.8bn.

Management expects ~10mmscmd exit rate by end-FY25E

Although IGL’s Delhi volumes are expected to grow at relatively lower rate of ~2-3% p.a., management remained confident of healthy volume growth albeit on a lower base from other GAs supported by infrastructure augmentation. IGL thus expects to clock ~10mmscmd FY25E exit rate. Guiding EBITDA/ scm at Rs7.5-8.0/ scm, management is primarily focusing on volume growth.

Non-Delhi GAs to propel volume growth

IGL experienced 15,000/ month CNG conversion rate and expects non-Delhi GAs which currently account for ~27% volumes to drive volume growth going forward. Management remained confident of achieving avg. volumes of ~9mmscmd in Q4FY24E with ~10mmsmcd FY25E exit rate. EBITDA/ scm guidance stood at Rs7.5-8.0/ scm. Based on management’s volume and EBITDA/ scm guidance, we have upped our volume estimates while lowering EBITDA/ scm. We expect Delhi EV policy impact on CNG volumes to reflect in coming quarters. Based on our revised estimates, we downgrade the stock from Buy to Reduce with a revised TP of Rs431 (earlier Rs447).

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