MOSL: INDRAPRASTHA GAS (Buy)-The engine running well on CNG

Indraprastha Gas: The engine running well on CNG

(IGL IN, Mkt Cap USD2.6b, CMP INR262, TP INR381, 46% Upside, Buy)

We recently met Indraprastha Gas’ (IGL) management to get an update on the company’s business trajectory. Key takeaways:

Volumes traction remains strong

• IGL’s volumes grew ~13% YoY in 1HFY19, supported by a healthy rate of vehicle conversions to CNG (at ~4,000 4Ws per month). Management expects volume growth to sustain over the near-to-medium term.
• Notably, ~5,000 CNG LCVs were added in FY18. Customers are likely to shift toward CNG-fitted engines due to a rise in the cost of diesel LCVs post BS-VI implementation. Government measures to curb pollution (e.g. diesel CVs now are restricted from entering Delhi) are providing added support. OEMs, too, are likely to roll out more CNG-fitted commercial transport vehicles, which bodes well for volume growth.

IGL to takeover gas supply in Gurugram by mid-CY19

• Deloitte was expected to submit the valuation of Haryana City Gas Distribution Ltd (HCGDL) before court hearing on 6^th Dec’18. However, due to a delay in completion of the same, the next hearing is likely in mid-Jan’19.
• HCGDL sells 0.4mmscmd of gas, of which 0.2mmscmd is procured through IGL. IGL is likely to takeover operations from HCGDL in Gurugram, which would possibly pave the way for the case in Faridabad. We, however, note that Adani has done better work in Faridabad than HCGDL did in Gurugram.
• Management expects sales in Gurugram to increase from 0.4mmscmd to 0.8-1.0mmscmd in three years.