MOSL: INDRAPRASTHA GAS (Buy)-Volumes continue stepping on the gas
(IGL IN, Mkt Cap USD2.9b, CMP INR298, TP INR381, 27% Upside, Buy)
- CNG/PNG segments grew by 13%/10% YoY in 3QFY19. PNG domestic grew by 11% YoY and industrial/commercial by 13% YoY. High volume growth, combined with marginal expansion in EBITDA/scm, resulted in EBITDA of INR3.2b (our estimate: INR3.1b; +21% YoY, +3% QoQ). PAT of INR2b (+19% YoY, +6% QoQ) came in marginally below our estimate due to a higher effective tax rate of 35.3% in the quarter.
- Strong CNG/PNG volume growth continues: CNG sales stood at 4.4mmscmd in the quarter, while PNG sales grew at 10% YoY (+1% QoQ) to 1.5mmscmd.
- PAT for IGL’s subsidiaries (CUGL and MNGL) stood at INR540m (IGL’s share: ~50% at INR270m in 3QFY19).
Valuation and view
- Due to the strong focus on curbing pollution in the NCR, CNG sales volume is likely to grow strongly. The expected restriction on the usage of dirty fuel would propel volumes further for the company. We model FY20/21 volume growth of ~12% and EBITDA/scm of INR5.8-5.9.
- We believe that (a) IGL’s consistent operational outperformance, (b) the government’s thrust on gas usage, and (c) sustainable high-growth market warrant premium valuations. The recent Supreme Court ruling for IGL to take over the assets of Haryana City Gas Distribution is another positive from the short- to medium-term volume growth perspective.
Indraprastha Gas Limited (IGL) is an India-based city gas distribution company. The Company's business consists of sale of natural gas. The Company is focused on industrial and commercial business. The Company supplies compressed natural gas (CNG) to the transport sector and piped natural gas (PNG) to the domestic, industrial and commercial sectors in Delhi and the National Capital Region (NCR). The Company offers PNG, which includes methane-CH4, as well as other hydrocarbons. The Company offers CNG, a gaseous fuel that includes a mixture of hydrocarbons, primarily methane. The Company has approximately 340 CNG stations spread all around the National Capital Territory of Delhi and in NCR. The Company provides PNG connections to over 6.36 lakhs domestic households, and approximately 2,630 commercial and industrial customers.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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