Hold Indraprastha Gas; target of Rs 350: ICICI Direct

ICICI Direct's research report on Indraprastha Gas

Indraprastha Gas (IGL) reported its Q4FY19 numbers that were above our estimates on account of robust growth of 15.9% YoY in volumes. Volumes at 6.3 mmscmd came in above our estimates of 6 mmscmd. Revenues increased 25.1% YoY to Rs 1542.6 crore, above our estimate of Rs 1505.8 crore on account of higher volumes. Gross margins came in at Rs 11.2/scm (our estimate: Rs 11.4/scm). Subsequently, EBITDA increased 13.7% YoY to Rs 331.2 crore (our estimate: Rs 325.2 crore). PAT came in at Rs 225.5 crore (increased 29.1% YoY), higher than estimate of Rs 201.1 crore, supported by higher other income of Rs 51.3 crore (our estimate: Rs 28 crore).

Outlook

Environmental concerns in Delhi have brought to the fore the urgency of using cleaner fuels, which puts IGL in a sweet spot. IGL has a unique identity of a company with a rare mix of volume growth and strong margins, supported by supportive governmental initiatives. Also, growth from new areas like Rewari, Dharuhera, Bawal, Karnal, etc would add to volumes. We believe IGL’s investment in Maharashtra Natural Gas (MNGL) and Central UP Gas (CUGL) is positive, giving it access to gas demand in Pune, Kanpur, Bareilly, Unnao and Jhansi. However, given the current valuations, we have a HOLD recommendation on the stock. We value standalone IGL at 24x EPS of Rs 13.6/share and investment in CUGL and MNGL at ~Rs 21 per share to arrive at a target price of Rs 350.

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