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Margins disappoint; hazy outlook

IGL’s Q4FY24 SA EBITDA/PAT of Rs5.2bn/Rs3.8bn came at a 17%/13% miss to our estimates, mainly due to lower realization affecting gross margins and higher opex. Volumes were in-line, at 8.7mmscmd, up 6% YoY and 3% QoQ. EBITDA/scm at Rs6.6 missed our estimate by 17%, on 11% higher unit opex. Mgmt. guided to 4-5%/10-15% YoY vol. growth for Delhi/other GAs, with FY25 vol. guidance at 9.5mmscmd. DTC targets 100% conversion of buses to EVs by CY25, but dumpers, inter-state buses and LNG trucks could support new GA volumes. IPNG should also grow rapidly. EBITDA/scm stands at Rs7-8.5, while capex would be Rs17-18bn p.a. We raise FY25-26E earnings by 6-8% each, on slightly better vol.-margin profile but retain REDUCE due to a hazy outlook. We raise our DCF-based Mar-25E rolled over TP by 3% to Rs440/sh.

Result Highlights

Q4FY24 SA EBITDA/PAT rose 13%/16% YoY and fell 6%/2% QoQ. CNG volume grew 5% YoY and was flat QoQ, coming in at 580mmscm. PNG was up 11% YoY/8% QoQ, with I/C up 12%/9% and DPNG increasing 17%/15%. Gross margin rose 2% QoQ to Rs13.1/scm, on lower unit gas cost. Unit opex rose 14% YoY/15% QoQ (11% above est), on one-time employee incentives and given that the entire CSR expenses were booked in Q4. Other income was up 54% YoY/79% QoQ at Rs1.1bn (at a 70% beat). D/A rose 9% QoQ to Rs1.1bn, whereas ETR was slightly higher at 26.2%. Share of profit from CUGL-MNGL was Rs815mn in Q4FY24, up 20% YoY/down 5% QoQ. IGL’s FY24 SA Revenue/EBITDA/PAT stood at Rs140.0/23.8/17.5bn, down 1%/up 17%/up 21% YoY, led by 4% YoY growth in total vol. to 8.4mmscmd, besides the 12% rise in EBITDA/scm to Rs7.7. Board declared final dividend of Rs5/sh, implying 36% payout for FY24.

Management KTAs

DTC volume de-grew as CNG buses were retired and replaced by EVs. 1,200 buses are already gone, whereas ~1,500 would be withdrawn in next 2-3 years (DTC targets 100% shift by CY25). IGL targets dumpers (as a segment) and interstate buses (in discussion with UP/Uttarakhand/Rajasthan for a 200/200/20 bus pilot). It aims to clock 9.5mmscmd total volume in FY25 on average (1mmscmd growth YoY) with CNG sales in the 8 new GAs (ex-Delhi-Noida-Ghaziabad) and IPNG being focus areas. Expects Delhi to grow 4- 5%, and other GAs 10-15%. EBITDA/scm guidance is Rs7.0-8.5. FY24 capex was Rs12.7bn; FY25 capex target is Rs17-18bn mostly on core areas, but Rs3-4bn would be on LNG retail & CBG. IGL plans opening 10 CBG plants with Rs2-3bn capex and producing 20mt/day/plant, totaling ~0.2mmscmd. In LNG, 1 station was commissioned in Ajmer and 5-6 additions are planned for this year. IGL has signed MoU with Concor.

Valuation

We value IGL on DCF-SoTP basis. Our SOTP-DCF-based Mar-25E TP of Rs440/share implies 12.6x Mar-26E consolidated 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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