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MOSL: INDRAPRASTHA GAS (Neutral)-In-line results; real challenge from APM and EVs ahead

INDRAPRASTHA GAS: In-line results; real challenge from APM and EVs ahead

(IGL IN, Mkt Cap USD5b, CMP INR535, TP INR510, 5% Downside, Neutral)

 

• Indraprastha Gas (IGL) reported EBITDA in line with estimate, with volumes marginally below estimate (-5% est., at 5.32mmscmd). On the other hand, EBITDA/scm was marginally better than estimated (+5% est., at INR7.9).
• IGL reported flat EBITDA margins QoQ, while peers MAHGL and GUJGA reported margin expansion QoQ on account of a higher mix of spot LNG. On the other hand, a much lower spot LNG mix resulted in flat QoQ EBITDA margins for IGL. We reiterate that margins of CGDs with a higher mix of CNG/PNG households would be severely pressured by an expected (60%) rise in AGM gas prices in 2HFY22.
• As discussed in our report, , CGDs would have to take a CNG price hike of INR4/kg (excluding taxes) to maintain margins around current levels. That said, OMCs are also asking for higher single digit commissions for selling CNG at their outlets, which would further challenge the sustainability of margins.
• The aforementioned factors would be more critical, especially at a time when Brent prices have started cooling off their peak, thereby reducing the attractiveness of CNG against petrol/diesel.
• We remain optimistic on the company’s volume growth prospects. We build in an aggressive CAGR of ~15% over FY22–24E, with margins normalizing at around INR6.5/scm over FY23–24E (v/s INR7.4–7.6 over FY21–22E). Valuing the company at 24x Sep’23E EPS, we arrive at Target Price of INR510/share and do not factor in any upside at CMP.