Buy Indraprastha Gas; target of Rs 450: A C Choksi

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Buy Indraprastha Gas; target of Rs 450: A C Choksi

A C Choksi is bullish on Indraprastha Gas and has recommended buy rating on the stock with a target of Rs 450 in its August 16, 2011 research report.

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A C Choksi is bullish on Indraprastha Gas and has recommended buy rating on the stock with a target of Rs 450 in its August 16, 2011 research report.

"Incorporated in 1998, Indraprastha Gas Limited took over Delhi City Gas Distribution Project in 1999 from GAIL (India) Limited (Formerly Gas Authority of India Limited). The project was started to lay the network for the distribution of natural gas in the National Capital Territory of Delhi to consumers in the domestic, transport, and commercial sectors. With the backing of strong promoters - GAIL (India) Ltd. and Bharat Petroleum Corporation Ltd. (BPCL) - IGL expects to provide natural gas in the entire capital region."

"IGL's FY11 results reflect the increase in the input costs and regulatory changes that happened during the fiscal year that affected all gas distributing businesses. IGL demonstrated its pricing power in both segments - compressed natural gas (CNG) and piped natural gas (PNG). The acceptance of price hikes by users ensured that IGL maintained its gross spreads in absolute terms. The company reported a Net Profit of Rs. 260 in FY10-11 as opposed to Rs 215 crores in FY 09-10, posting a growth of 21% Y-o-Y. Total expenditure of the company stood at Rs 1264 (up 80% Y-o-Y) crores owing to higher input and selling costs. EBITDA margin for the year stood at 28.73% as compared to 37% in FY10.The increase in the selling prices of gas, going for borrowings to support expansion, tie up with OMCs and long term supply agreements with customers were the highlights for the company in FY11."

"IGL's monopoly and continuous volume growth in the NCR is a key highlight for the company. The rising demand for CNG (auto sector) and PNG (domestic and commercial sector) is a major trigger for IGL. The government's allocation of additional APM to IGL has strengthened the company's sourcing portfolio as its reliance on high-cost imported LNG has come down. Price hikes in CNG by the company have increased their CNG realization by 28% Y-o-Y while their PNG realizations grew by 21%. Winning the gas distribution license bid for Ghaziabad will only add to their strong distribution network as the region possesses high industrial potential. The last quarter's performance (Q1FY12), which was above the market's expectations only, proves IGL's potential as a profitable gas distributor."

"The stock is currently trading at 20.41x PE at FY12E EPS. Our target price for the stock is Rs. 450 which implies an earning multiple of 21.27x FY12E EPS. We initiate coverage on IGL with a 'BUY' recommendation and any further decline from here can be utilized as an opportunity to accumulate the stock," says A C Choksi research report.

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To read the full report click on the attachment