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MOSL: INDRAPRASTHA GAS (Neutral)-Moving in the right direction, but fairly valued

​Indraprastha Gas: Moving in the right direction, but fairly valued

(IGL IN, Mkt Cap USD2.2b, CMP INR1044, TP INR1023, 2% Downside, Neutral)

We recently met management of Indraprastha Gas (IGL). Key takeaways:

CNG segment to see 8-10% growth

At peak, Delhi Transport Corporation (DTC) had a fleet of 5,500 buses. However, due to the phasing out of older buses and the inability to add newer ones, the fleet size has narrowed to 4,000 buses, of which only ~3,500 are operational. Some growth though is expected to come from addition of cluster buses, as well as feeder buses for metros. Most aggregator cabs have converted fully to CNG. Around 40-50,000 cabs with all-India permits are expected to convert to CNG once their current licenses expire. The restriction on approved CNG kits still exists, leading to monthly conversions coming down to 1,500 from 3,000-4,000/month. The company guides for CNG growth of 8-10%. It has ~420 CNG stations and plans to add ~25 each year.

Expect >100,000 household connections every year

IGL added 76,000 household connections in FY16 and another 100,000+ in FY17. In NCR, there are 4m LPG connections, of which 2-2.2m could be potentially converted to PNG-residential. Of these, the company has cumulatively connected ~0.8m households. It targets 25-40,000 connections in defense areas. It is also exploring new avenues like universities/state houses.