Neutral Indraprastha Gas; target of Rs 452: Motilal Oswal

Motilal Oswal's research report on Indraprastha Gas

Indraprastha Gas (IGL) reported a beat on our estimated EBITDA in 3QFY23, driven by higher-than-expected EBITDA/scm of INR5.7 (down 14% YoY/19% QoQ). Volumes were flat QoQ at 8.1mmscmd (up 6% YoY). - The hikes in CNG (of INR3/kg) and PNG (of INR3/scm) prices in Oct'22 were inadequate to cover the increased cost to end-consumer. As a result, the margins contracted. - Management expects input cost pressures to subside by ~INR6/scm, if Kirit Parekh recommendations are implemented. It also highlighted that IGL will partially pass on the cost benefit to the end-customer. - Management further anticipates volumes to rise to ~9mmscmd in FY24 and ~10mmscmd in FY25. Most of this growth would come from new GAs. About 50% of the incremental volumes would be accounted by industrial customers. - Although the management has guided for an EBITDA/scm of INR7-8, we model a lower EBITDA/scm of ~INR6 in our base case considering a likely margin pressure due to high proportion of industrial component in incremental volumes. -

Outlook

We value the stock at 17x Dec'24E standalone EPS and add value of JV at 25% holding company discount to arrive at our TP of INR452. We reiterate our Neutral rating on the stock.

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Indraprastha Gas - 30 -01-2023 - moti