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Muted volume growth; outlook volatile

IGL’s Q1FY25 SA earnings were a slight 2% beat to our estimates, mainly led by 3% higher-than-expected gross margins on lower gas costs. Volumes disappointed at 8.6mmscmd (a 4% miss), up 5% YoY and down 1% QoQ. EBITDA/scm at Rs7.4 beat our estimate by 6% on gross margins. The mgmt. guided to 10-12% YoY volume CAGR on a long-term basis, with EBITDA/scm expected in the range of Rs7-8.5. DTC volumes are expected to be nil in 2-3 years, while new GAs could drive volumes going ahead. The mgmt. indicated better margin in LNG retailing compared to CNG due to nil excise levy, but LNG would contribute sizably by FY26. We trim FY25-26E earnings by 2% each on slightly-weaker volume profile. We raise our DCF-based Sep-25E TP by 16% to Rs510/sh on roll-over and lower cost of capital assumptions; we retain REDUCE.

Result Highlights

Q1FY25 SA EBITDA/PAT fell 9%/8% YoY and rose 11%/5% QoQ to Rs5.8bn/4.0bn. CNG volume grew 5% YoY and 1% QoQ at 588mmscm. PNG was up 7% YoY/down 7% QoQ, with I/C up 6%/down 11%, and DPNG up 16%/down 11%. Gross margin rose 1% QoQ to Rs13.2/scm on lower unit gas cost. Unit opex rose 1% YoY/fell 11% QoQ (in-line). Other income was up 59% YoY/down 34% QoQ at Rs727mn. D/A rose 3% QoQ to Rs1.14bn, whereas ETR stood at 25.4%. Share of profit from CUGL-MNGL was Rs808mn in Q1FY25, down 3% YoY/1% QoQ. IGL has invested Rs89mn/189mn in Q1FY25/FY24 in its 51% subsidiary IGL Genesis Technologies (manufactures gas meters). IGL's share in net loss of IGL Genesis Technologies was Rs10.2mn in Q1FY25.

Management KTAs

Volumes from DTC buses have been impacted with run-rate of 0.25mn kg/day during FY24 and is now down to 0.15mn kg/day; expected to be zero by FY26. Mgmt. guided to Q2FY25 volume growth of 8-10% YoY; while Q4FY25 volume target (exit) is 9.5mmscmd. EBITDA/scm target for Q2 is >Rs8, whereas long-term range is Rs7-8.5/scm, as the current pricing can absorb LNG price rise up to 10-15%. APM allocation in Q1FY25 was 62% of priority volumes, while the balance 38% was met through a mix of term contracts as well as spot LNG (5-7% share). The company is planning to set up 5-6 LNG stations in FY25 and 1 station exclusively for CONCOR. Capex target for FY25 is Rs17-18bn with increase of 10-15% in incremental compression capacity, addition of 90 CNG stations, 0.327mn DPNG connections, 2k I/C customers, and 3k km of pipeline network. The company is planning to set up 10 CBG plants in FY25, including through JVs with capex per plant at Rs300-350mn. The monthly average CNG conversion run-rate stood at 16k in Q1FY25 vs 13.5k YoY.

Valuation

We value IGL on DCF-SoTP basis. Our SOTP-DCF-based Sep-25E TP of Rs510/share implies ~14x Sep-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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