Dolat Capital recommended accumulate rating on Indraprastha Gas with a target price of Rs 472 in its research report dated August 26, 2020.
Dolat Capital's research report on Indraprastha Gas
IGL volume at 2.71 MMSCMD (down 56.6% YoY) with realizations of Rs 25.6 per SCM (down 7.1% YoY) was below our estimates. Volumes in CNG segment took a bigger hit followed by de-growth in Industrial/commercial segment with strong performance in Domestic PNG segment of 39% YoY. EBITDA/scm de-grew 46.4'% YoY and 49.2% at Rs 3.38/scm. Gas cost de-grew 25.4% in YoY and 17% sequentially to Rs 12.1/scm. Gross spreads were strong at Rs 13.54 per SCM. Maintenance of spreads at Gross and EBITDA levels will be the key monitorable to be watched out for. Volumes for IGL have recovered to 80% Pre Covid levels with Industrial volumes recovering 100%, domestic PNG volumes at 120%, CNG volumes at 80% and commercial volumes at 40% of Pre Covid levels. It is expected that by mid Q3FY21E avg. sales will surpass last year’s sales. Volume growth outlook for the long term looks good and we believe that IGL should be able to maintain double-digit volume growth trajectory driven by CNG economics and expansion in regions like Rewari and Gurugram. IGL has got full rights of CGD operations in high potential Gurugram region which is a mature area, volumes should take some time to clock in as there can be a slowdown in capex.
Outlook
We continue to like the story considering the business dynamics of IGL. There can be some short term pressure on the stock price as there will be capex spent to the tune of Rs 20,000 mn in next 3 years, Covid Impact can decline revenues for FY21 before getting back to normal levels in FY22, and the hangover around the common carrier policy to be introduced by the regulator. Considering these factors, we maintain Accumulate with a target price of Rs 472. (DCF Method).
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