Q2FY23 Review: Indraprastha Gas: Beat on strong margins; stable outlook

3 Nov 2023 , 12:56 PM

IGL’s Q2FY24 PAT grew 29% YoY, ahead of estimates, driven by strong margins (up 21% YoY on opportunistic gas sourcing). Volume growth was subpar at 3% YoY; impacted by floods, G20 summit, and lower vehicle conversions, etc. IGL is awaiting implementation of Delhi’s EV policy for ride aggregators which poses a 15% volume risk, but comes with several implementation challenges. Analysts of IIFL Capital Services upgrade their FY24-FY26 PAT by 12-13% on consistent strong margins. Valuations at 13x FY25 EPS (adjusted for stake in JVs) seem attractive; Re-iterate BUY. 

Strong margins offset subdued volumes: 

IGL reported strong Q2 with Ebitda/PAT rising by 25%/ 29% YoY respectively, surpassing expectations on strong margins. However, overall volume growth was limited to 3% YoY affected by the Delhi floods, G20 summit, lower vehicle conversions etc. during the quarter. Ebitda/scm was firm at Rs8.6, flat QoQ, but, up 21% YoY on benefits of opportunistic gas sourcing. CNG volumes grew by 3% YoY, D-PNG growth was much higher at 15% YoY, but I&C sales declined by 2% YoY; CNG: PNG sales mix was 80:20, unchanged YoY /QoQ. IGL’s 2 JVs (CUGL and MNGL) – reported 29% YoY growth in profits. 

Upbeat on growth:

During the Q2 concall, IGL shared: 1) its Q2 volume growth was adversely affected by nearly ~0.12mmscmd (~1.5%) due to floods and G20 summit; 2) it is awaiting implementation of EV policy by Delhi state for aggregators which risks ~15% of its overall volumes; as such there are several implementation issues, and stakeholders may face challenges in such transition; 3) regardless, it is working on a strategy including aggressive marketing to passenger vehicles, LCVs, trucks, interstate buses to offset such risk; 4) it plans to exit FY24 at 9mmscmd run rate, and eyeing a 7-10% pa growth in FY25; 5) to spur volume growth it may offer attractive pricing and step up infra rollout (annual capex of Rs12-14bn); 6) non-Delhi areas are likely to drive growth; 7) Ebitda/scm should average Rs8-8.5/scm as new areas are in rampup mode. 

Upgrade estimates:

Analysts of IIFL Capital Services upgrade FY24-FY26 EPS by 12-13% on back of firm margins which translate to a 9% p.a. PAT growth through FY24-26. Adj for stake in the two JVs, IGL trades at 13x FY25 EPS; they find valuations attractive and see the recent correction as a good opportunity to BUY. As such stock has found fundamental support at current FCFF yield (5%).