Q1FY24 Review: Indraprastha Gas: Margins offset subdued volumes

27 Jul 2023 , 11:31 AM

IGL’s Q1FY24 Ebitda/PAT was up by 4/4% YoY respectively, and was largely in line with estimates. As per IGL, volume growth was impacted by floods in the NCR region as the company had to shut down some of its CNG stations in Q1, for which the overall volume growth was only 4% YoY/flat QoQ. At Rs8.6, Ebitda/scm was flat YoY, up by 37% QoQ (cheaper gas availability). Analysts of IIFL Capital Services retain FY23- 25 EPS growth of 10% p.a., on the back of a pickup in volumes and steady margins. At 18x FY25 EPS (after adj. for a stake in 2 CGDs), the stock is not cheap anymore, and will await clarity on the pricing of autofuels. 

Lower gas prices aid margins: 

IGL’s Q1FY24 PAT was up by 4% YoY/33% QoQ. Volumes rose by 4% YoY/flat QoQ. Lower gas prices led to sharp expansion in Ebitda/scm sequentially to Rs8.6/scm (flat YoY) from Rs6.3/scm in 4QFY23, as the company did not pass on the benefit of full gas cost decline to customers. While CNG growth was 4% YoY; D-PNG growth was much higher at 20% YoY. However, I&C PNG and trading volumes declined by 2%/1% YoY. CNG: PNG sales mix was 80:20 vs 79:21 QoQ. IGL’s 2 JVs (CUGL and MNGL) – reported 38% YoY growth in profits.

Focus remains on volumes: 

During the Q1 concall, management shared: 1) CNG volume growth was impacted during the quarter due to floods in the NCR regions and some CNG stations had to be shutdown. 2) Target of 10-11% p.a. volume growth over FY23-25 holds steady. 3) I&C PNG business is facing headwinds from the use of alternate fuels (propane), for which the company has cut prices in this segment. 4) Margin guidance of Rs7.5-Rs8/scm is maintained. 5) Capex for the quarter was Rs2.5bn; while capex target for the full year is Rs14-15bn (100 CNG stations planned). 6) APM gas allocation for the priority sector was at 90% in the Q1FY24.

Maintain Estimates: 

Analysts of IIFL Capital Services retain 10% Cagr for FY23-25, driven by 8-9% volume Cagr and steady margins. They build in conservative assumptions on margins on concerns regarding the pricing of autofuels and its resultant impact on CNG pricing. Earnings are sensitive to gross margins a lot more than volume growth (Rs1/scm change=13-14% swing in PAT). At 18x FY25 P/E (adj. for associate cos), valuations are no longer cheap and will await clarity on the pricing policies of the autofuels.