Buy Indraprastha Gas; target Rs 405: LKP

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Buy Indraprastha Gas; target Rs 405: LKP

LKP is bullish on Indraprastha Gas (IGL) and has recommended buy rating on the stock with a target price of Rs 405 in its January 27, 2012 research report.

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RELATED NEWS Reduce Bank of India; target of Rs 320: Emkay Motilal Oswal neutral on Cairn India Buy VST Industries; target of Rs 1445: Firstcall Research ALSO READ See previous views by LKP See what other Experts & Brokerages are saying about IndraprasthaGas See messages about IndraprasthaGas IndraprasthaGas BSE | NSE 31/05/12 Are Mutual Funds betting on IndraprasthaGas?

LKP is bullish on Indraprastha Gas (IGL) and has recommended buy rating on the stock with a target price of Rs 405 in its January 27, 2012 research report.

"Indraprastha Gas (IGL)'s Q3 FY12 net profit exceeded our expectations on the back of lower than estimated gas cost in spite of a sharp rise in spot LNG prices and swift depreciation of the rupee. The company sold 313.8 mmscm during the quarter comprising of 179.8 mn kg of CNG and 71.1 mmscm of PNG. Total sales improved by 6.1 mmscm q-o-q & 64.6 mmscm y-o-y. CNG sales came in 5.3% ahead of our estimate, which resulted in actual sales volumes being 3.2% ahead of our expectations. While CNG sales were flat sequentially, PNG sales improved 4.3% sequentially."

"EBITDA/scm for Q3 FY12 came in at Rs 4.79/scm, compared to Rs 5.13/scm in Q2 FY12 & Rs 5.19/scm in Q3 FY11. This pressure on margins was due to increased dependence on costlier spot R-LNG and was exacerbated by the swift depreciation of the rupee. However, raw material cost at Rs 13.5/scm was 4% lower than our estimate of Rs 14/scm, leading to better than expected EBITDA/scm. Q3 FY12 revenue came in at Rs 6,631.3 mn, 1.4% ahead of our estimate. While CNG sales of Rs 4,934.4 mn was 4.2% ahead of our estimate, PNG sales at Rs 1,638.8 mn disappointed by coming in 9.2% lower than expected. Sales increased 45% y-o-y on account of higher sales volumes and price hikes. Q-o-q growth of 11% was primarily due to the price hike in CNG on Oct 1, 2011."

"Q3 FY12 EBITDA stood at Rs 1,504.4 mn, up 16.4% y-o-y but down 4.8% sequentially. While the y-o-y rise was due to price hikes taken during the year, the q-o-q drop is reflective of the squeeze on margins due to the steep depreciation in the rupee and higher proportion of spot R-LNG. While depreciation was up 6.8% q-o-q at Rs 368 mn, interest expense was up 15.1% q-o-q at Rs 135.3 mn; which were as per expectation. The y-o-y jump of 40.7% & 228.7% in depreciation & interest expense respectively is due to the heavy capex being incurred and debt raised for the same. Consequently, Q3 FY12 PAT stood at Rs 691.5 mn, up 2.9% y-o-y but down 10.5% q-o-q. EPS for the quarter was Rs 4.9 compared to Rs 4.8 in Q3 FY11."

"We had initiated coverage on IGL in Oct 2011 with a contra-consensus SELL call, citing risks to continuance of the past rosy growth & margin scenario. Subsequently, the stock has corrected from Rs 426 at the time of our initiation to as low as Rs 317. Subsequently, we had come up with an event update wherein we upgraded our recommendation to a BUY with a target price of Rs 366. As rupee has appreciated by ~5.7% in Jan 2012 and spot LNG prices have come down from ~$ 16/mmBtu to ~$14/mmBtu, we expect the coming quarters to be significantly better. We roll forward our valuation to Mar 2013 and maintain BUY with a revised target price of Rs 405 which translates into an upside of ~15% to the CMP of Rs 350," says LKP research report.

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