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Emkay Global
Indraprastha Gas (Buy)
Target: ₹610
CMP: ₹531.50
As NCR starts to unlock, we expect quick recovery in CNG volumes. In Q4-FY21, peers MGL and GGL have beaten expectations in CNG and guiding on a quick recovery ahead. We expect the same for IGL.
With higher oil prices, CNG running cost currently is 65 per cent/50 per cent lower than petrol/diesel. Q3-FY21 saw cars-taxi conversions jump to 8,333/month. We believe that despite return of public transport, Covid-led shift to personal mobility would not reverse entirely.
As per media reports, 54 new CNG stations of IGL were inaugurated recently. While 9M-FY21 saw only 7 additions due to Covid hit, the current run-rate implies that the company is back to the annual rate of 50-60 additions, and it should support volumes.
IGL's EBITDA/scm outlook is also stable with listed peers expanding their margins by 20-35 per cent in FY21. BPCL divestment-open offer issue is an overhang though BPCL's management has stated that discussions are on with SEBI and Govt for an exemption.
Despite an expected increase in domestic gas prices in H2FY22, we believe IGL would be able to pass on it given attractive CNG economics and relatively lower retail margins than listed peers.
The transfer of Haryana City Gas (HCG)’s Gurugram asset is also expected going ahead, and it should lead to immediate margin boost.
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