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Weaker-than-estimated margin leads to a miss on EBITDA

* Indraprastha Gas (IGL)’s EBITDA came in below our est. at INR5.2b in 4QFY24 due to a lower-than-expected EBITDA/scm of INR6.6 (vs. our est. of INR7.2). Volumes increased 6% YoY to 8.7mmscmd.

* Management guided a rise in volumes to 9.5 mmscmd in FY25 (FY24 average: 8.7 mmscmd) driven by: 1) robust growth (+15% YoY) at new geographic areas (GAs) outside of Delhi-NCR, and 2) a strong industrial and commercial volume growth momentum. EBITDA/scm guidance was retained at INR7.0-8.5. IGL guided FY25 capex at INR18b vs. ~INR12b in FY24.

* While management commentary turned bullish after several quarters, we believe FY25 volume guidance of 9.5 mmscmd might be hard to achieve given: 1) the continued retirement of DTC buses and replacement with an electric fleet, and 2) industrial volume growth, though healthy but may see continued competition from low propane prices. Further, continued APM gas shortfall may put pressure on margin guidance of INR7.0-8.5/scm.

* We expect IGL’s volumes to report 7% CAGR in FY24-26, as against an 11% CAGR during FY16-23, owing to multiple headwinds. We value the stock at 12x FY26 adj. EPS and add the value of JV at 25% holding company discount to arrive at our TP of INR390. We reiterate our Sell rating

Volumes in line

*  Total volumes were in-line with our estimate at 8.73mmscmd (+6% YoY)

* CNG volumes were at 6.37mmscmd (+4% YoY) and PNG volumes stood at 2.35mmscmd (+10% YoY)

* EBITDA/scm came in below our est. at INR6.6 (vs. our est. of INR7.2)

* Gross margin came in at INR13.1/scm (vs. INR12/scm in 4QFY23) o Opex was INR6.6/scm (vs. INR5.8 in 4QFY23)

* Resulting EBITDA stood at INR5.2b (our est. of INR5.8b, +13% YoY).

* PAT was INR3.8b (est. of INR3.8b, +16% YoY) supported by higher-thanexpected other income.

* For FY24, EBITDA rose 17% YoY to INR23.8b, with an EBITDA/scm of INR7.7 (-28% YoY). PAT was up 21% YoY to INR17.5b

*  Total volumes rose 4% YoY at 8.43mmscmd, with CNG at 6.28mmscmd (+4% YoY) and PNG at 2.15mmscmd (+5% YoY)

* The company has invested INR189m for allotment of 51% shares in the subsidiary during FY24.

* The company's share in net loss of the subsidiary during the year was INR17m and during the quarter was INR5m.

* The Board recommended a final dividend of 250% of FV i.e. INR5/share.

Valuation and view

* While IGL’s volumes posted 9.7% CAGR over FY16-24, we are building in a 7% CAGR during FY24-26. Lastly, we believe EBITDA/scm may remain under pressure owing to a reduction in APM allocation.

* We value the stock at 12x FY26E adj. EPS and add value of JV at 25% holding company discount to arrive at our TP of INR391. Reiterate Sell.

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