“Buy” Indraprastha Gas Shares, Says Emkay Global

Broking firm, Emkay Global has placed a "buy" call on the stock of Indraprastha Gas with a price target at Rs 610, which is almost 15% higher than the current market price of Rs 530.

The broking firm believes that CNG volumes are to pick-up in the Noida region. "With higher oil prices, compressed natural gas running cost currently is 65%/50% lower than petrol/diesel. Q3FY21 saw cars-taxi conversions jump to 8,333 per month. We believe that despite return of public transport, Covid-led shift to personal mobility would not reverse entirely," the broking firm has said.

CNG demand to pick up in NCR region

Indraprastha Gas' Q1FY22 volumes were hit due to second wave lockdown (up to 30-35% as per our checks). According to Emkay global, as the National Capital Region starts to unlock, it expects Indraprastha Gas CNG volumes to recover. Based on peers MGL and Gujarat Gas' Q4FY21 results, CNG recovery was better than expected, and Indraprastha Gas also indicated earlier of 5-10% yoy volume growth (7% overall growth expected by us), it said.

According to the broking firm, among other segments, domestic PNG has been recording strong growth, while industrial should be supported by polluting fuels ban in the NCR despite higher LNG prices.

 

Double digit growth trajectory

"We hence expect Indraprastha Gas to re-enter double-digit volume growth trajectory (adjusted for the FY21 base effect). Indraprastha Gas has reportedly added 54 CNG stations - in line with annual trends seen in last two years.

With higher oil prices, CNG running cost currently is 65%/50% lower than petrol/diesel. Q3FY21 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," the broking firm has said.

 

Justifying valuations

According to Emkay Global, the transfer of Haryana City Gas (HCG)'s Gurugram asset is also expectedly going ahead, and it should lead to immediate margin boost as currently only Rs 2/scm of gross margin accrues in trading volumes. Around 1,000 buses are also expected to be added to the Delhi fleet within a year.

"We value Indraprastha Gas using DCF-SOTP with a consolidated FY23 target PE multiple of 22 times," the brokerage has said.

Based on this the firm has arrived at a price target of Rs 610 in the stock. The shares of Indraprastha Gas were last seen trading at Rs 530 on the Bombay Stock Exchange.

 

Disclaimer

The above stock is picked from the report of Emkay Global. Investing in stocks are risky and investors should do their own research. The author, the brokerage firm or Greynium Information Technologies is not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as markets have run-up significantly.