This Mid Cap Gas Stock Gets Buy Call For Target Price Of Rs 515, Likely To Gain 36%

Indraprastha Gas Limited in HDFC Securities' report gets buy call for a target price of Rs 515 apiece. If the investors buy the stock of the company at the current market price they can expect gains of 36% in 12 months. Indraprastha Gas is a mid-cap gas Distribution company having a market cap of Rs 25,112.53 crore.

Stock Outlook & Returns

The current market price of the stock is 379.80 apiece, which was opened at Rs 368 apiece. Today the share price surged 5.93%. Currently, the stock is trading Rs 58.8 above its 52 week low recorded on March 07, 2022. The stock is trading at Rs 222.25 below the 52 week high of Rs 602.05, which was recorded on September 14, 2021.

Over the past 1 week, the shares of the company gained 8.21%. Whereas, in the past 1 month, the stocks moved up by roughly 2.4%. In the past 1 year, the share price has fallen 27.26%. In the past 3 and 5 years, the shares gained 22.14% and 56.4%, respectively.

Volumes

Blended volume remained robust at 7.89mmscmd (+48% YoY, +2% QoQ, HSIE: 7.8mmscmd). CNG volume stood at 5.93mmscmd (+63% YoY, +5% QoQ), domestic PNG at 0.48mmscmd (-0.3% YoY, -15.1% QoQ), industrial/commercial at 0.98mmscmd (+20% YoY, -5% QoQ) and trading volumes at 0.5mmscmd, (+34% YoY, flat QoQ). Overall PNG volume was at 2mmscmd, up 17% YoY but lower 6% QoQ.

Margins

Per-unit gross spread in Q1 was at Rs 14.3 (-1% YoY, +12% QoQ; HSIE: Rs 13.6) due to a lower-than-expected gas cost of Rs 30.2 (+2.6x YoY, +39% QoQ). Per-unit EBITDA came in at Rs 8.6, (+9% YoY, +20% QoQ), as against HSIE's Rs 8.1/scm. Per-unit opex was at Rs 5.7 (-13% YoY, +2% QoQ, HSIE Rs 5.6/scm).

Outlook

Outlook on volume

"We expect average CNG volume to increase by 16% YoY to 5.9mmscmd in FY23E. Total volume is estimated to increase to 8.1/9.1mmscmd in FY23/24E," the brokerage said.

Outlook on per-unit EBITDA

Per-unit EBITDA is expected to decline by 6% in FY23 to Rs 7/scm on account of elevated gas cost and improve to INR 7.5/scm in FY24E. Consolidated EBITDA should grow by 9% YoY in FY23E to INR 21bn and 20% YoY in FY24E to INR 25bn, led by strong volume growth, positive outlook, and steady per-unit margins, despite the high gas cost environment.

Buy For Target Price of Rs 515

Margins improve on higher realisations Our BUY recommendation on Indraprastha Gas (IGL) with a target price of INR 515 is based on (1) robust volume growth at ~14% CAGR over FY22-24E, (2) regulatory support from the government to curb pollution in the Delhi/NCR region, and (3) a strong portfolio of mature, semi-mature, and new geographical areas. Q1FY23 EBITDA was at Rs 6.2bn (+62% YoY, +23% QoQ), while APAT at Rs 4.2bn (+72% YoY, +16% QoQ) came in above our estimates, owing to better realisation and lower-than-expected raw material cost.

Change in estimates

"We revise our EPS estimates by -4/-3% for FY23/24E to INR 21.9/25.5, factoring in marginally lower volumes across our DCF period, thereby reducing our Target Price to Rs 515/sh," the brokerage said.

DCF-based valuation

"Our target price is Rs 515 (WACC 11%, terminal growth rate 3.0%). The stock is trading at 14.1x FY24E EPS," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.