Mr. Avishek Datta - Research Analyst at Prabhudas Lilladher Pvt. Ltd.
Quick Pointers:
- Volume recovery continues- Q4 growth of 14%YoY, FY22 growth of 31%YoY and 2 year CAGR of 4%.
- FY22 spreads of Rs7.4/scm vs Rs7.6/scm in FY21 is commendable, given sharp rise in gas prices (+50%YoY).
- Regular pricing intervention to support medium term margins.
We tweak our FY23/24E earnings lower by ~1%. IGL reported strong results with EBIDTA/PAT of Rs5.0bn (6%Q/Q; PLe Rs3.9bn) and Rs3.6bn (16%Q/Q; PLe Rs2.7bn), due to higher margins given lower spot purchase. Volumes were lower QoQ partly due to pandemic restrictions in January and were at 7.7mscmd (-1%Q/Q). For FY22, EBIDTA/PAT was at Rs18.8bn (+11% 2yr CAGR) and Rs13.1bn (2yr CAGR 7.7%). We believe pick-up in economic activity will drive growth in coming quarters. IGL remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Also, fuel economics, shift to private vehicle ownership post pandemic will drive CNG volumes despite excise duty cuts, in our view. Reiterate "BUY" with DCF-based PT of Rs589 (Rs662) as we raise the WACC to 10.3% from 9.7%.
Volume recovery lower than expected: Indraprastha Gas' (IGL's) Q4FY22 volumes improved at 7.7mscm (-1% QoQ; PLe 8.0) as economic activity picked up. For Q4FY22, CNG and PNG volumes were at 5.7mscmd (-2% QoQ) and 2.1mmscmd (+1%QoQ), respectively. For FY22, CNG/PNG volume was at 5.1mmscmd (+36%YoY; 2 yr CAGR 3%) and 1.9mmscmd (+20%YoY; 2 yr CAGR 6.6%).
Q4 EBITDA and PAT were at Rs5.0bn (6%QoQ; PLe: Rs4.0bn) and Rs3.6bn (+16%QoQ; PLe: Rs2.7bn). Q4 gross margins were higher at Rs16.2/scm (Q3: Rs15.0), while EBIDTA/scm was at Rs7.2/scm (PLe Rs5.5). For FY22, EBIDTA/scm was at Rs7.37 vs Rs7.6/scm in FY21.
Rising preference for private transport to fuel CNG demand: IGL's gas sales will ride on rising preference for private vehicles due to attractive fuel economics (CNG cheaper to petrol by 55%). We have modelled 16%/18% volumes for FY23/24E. Also, benign domestic gas and stabilizing spot LNG prices will support earnings; we factor in EBIDTA/scm of ~Rs7.5 for FY23E.
Limited threat from EV: We see limited threat to IGL's growth prospects as favorable fuel economics (60% cheaper to petrol) along with supply of low cost domestic gas will drive earnings. Also, strained state financials post pandemic leave a very little room for state government to introduce high cost EV buses (~Rs7.5mn post 40% subsidy) vis-à-vis Rs3.5mn for CNG variant.
State government subsidy will increase two wheelers penetration of EV who do not use CNG. Accordingly, we see limited hindrance to IGL's prospects.
Shares of Indraprastha Gas Limited was last trading in BSE at Rs. 363.75 as compared to the previous close of Rs. 367.75. The total number of shares traded during the day was 25235 in over 1614 trades.
The stock hit an intraday high of Rs. 366.00 and intraday low of 359.85. The net turnover during the day was Rs. 9150086.00. |
