Large Cap PSU Stock Figures In Buy List Of ICICI Securities, Buy For 35% Return

ICICI Securities has picked large cap Gas & Petroleum sector stock, Indraprastha Gas Ltd to buy with a target price of Rs 540 apiece. If you buy IGL shares now, you will get potential 35% return. In the near term, with current level of prices, IGL may be able to pass on ~Rs4.3/kg in CNG and ~Rs4.7/scm reduction for the domestic segment which can potentially improve price competitiveness in the near term. Check key takeaways below:

1. Indraprastha Gas Stock Performance & Return

The last trading price of the stock is Rs 401 apiece with an intraday dip of 5.50%. The stock's 52-week high is Rs 502 apiece and 52-week low is Rs 322 apiece, respectively. The stock has given return of 22% in last 5-years. The shares have declined 7% in last 3-years and 20% in last 1-year.

2. Stellar Volume Growth

Q2FY23 volumes at 8.1mmscmd were up 11.8% YoY and 2.5% QoQ. Despite higher sales prices across segments, volume growth has remained resilient, with CNG conversions sustaining at ~15k p.m. currently.

With some respite in gas costs over the next few months, management guidance of 11-12% sustainable growth overall for FY23E-FY24E remains intact. We estimate ~12% CAGR over FY22- FY24E on the back of i) moderation in gas costs, ii) renewed conversions for CNG and FY24E on the back of i) moderation in gas costs, ii) renewed conversions for CNG and support in the NCR (National Capital Region).

3. Margins Will Moderate

While H1FY23 EBITDA/scm of Rs7.8/scm remains above historical trends, we believe margins will likely moderate over H2FY23-FY24E.

Higher gas costs over H2FY23-FY24E (despite the new cap announced by the Kirit Parikh Committee), lower allocation as %age of APM gas and limited change seen in petrol/diesel prices imply margins will likely be at lower levels for FY23-24E vs the record high seen in FY21 (gross margins of Rs13.9/scm, EBITDA/scm of Rs7.6/scm).

4. Valuation & Risk

According to ICICI Securities, "In our view, the 10% dip in the stock price over the past one year ignores the long-term prospects in favour of the near-term stress on margins. We have raised volume estimates for FY23E/FY24E by 3.9/1.4%, respectively, to factor stronger actuals and higher guidance in H1FY23. FY23E/FY24E EPS has been raised by 4.2/1.4%, respectively. We see current valuations of 19.5x FY24E P/E and 12.1x EV/EBITDA offering excellent risk reward. Our DCF-based valuation (FY23E/FY24E average) of Rs540sh implies a material 23.6% upside from CMP. Reiterate BUY."

Key Risks: Inability to pass on domestic gas price increases, a downward movement in petrol/diesel/LPG prices, and further delays in Gurugram CGD allocation.

5. About IGL

Indraprastha Gas Ltd is a City Gas Distribution Company (CGD) incorporated in 1998. The company is a joint venture between GAIL (India) Ltd and Bharat Petroleum Corporation Ltd. In the year 1999 the company took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Ltd.

 

Disclaimer

The stock has been picked from the brokerage report of ICICI 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.