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Buy Indraprastha Gas with a target of Rs 160: Angel Broking

Published on Wed, Dec 13, 2006 at 11:02 | Source : Moneycontrol.com

Updated at Wed, Dec 13, 2006 at 11:38

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IndraprasthaGas

BSE | NSE 25/05/12

Are Mutual Funds betting on IndraprasthaGas?

Broking house, Angel Broking is bullish on Indraprastha Gas and has recommended buy rating on the stock with a 12-month price target of Rs 160.

Angel Broking report on Indraprastha Gas:

Investment Argument

CNG volumes continue to surge:

CNG which formed about 93% of the revenues (Rs 476.4cr) during FY2006 continues to show robust growth. Only about 5% of the entire vehicle population is converted to CNG leaving lot of scope for IGL growth. We expect this segment to grow at a rate of about 7-8% forward.

PNG demand on an upswing:

PNG which formed about 7% of the total revenues (Rs 44.5cr) during FY2006 is growing at a much faster pace than CNG. Currently, only about 1.6% of the total 35 lac domestic customers are catered by IGL, leaving a sizeable opportunity for future growth.

Firm commitment for Natural Gas supplies:

IGL has a firm allocation of 2.0 mmscmd gas from GAIL's Hazira-Vijaypur-Jagdishpur (HVJ) pipeline for the Delhi market as it is covered by the Supreme Court order (valid till 2010). Currently the company is utilizing about 80% (1.6 mmscmd) of the allocated quantity of natural gas keeping a leeway of 20% for further growth.

Stable operating margins:

IGL is enjoying healthy 41% operating margins. We expect operating margins improvement by about 50 - 100 bps over the next couple of years on the back of strong volume growth.

Tapping new markets:

IGL boasts with over 910 km of pipeline network. Apart from focusing on NCT, IGL plans to spread its network across the nearby areas of Greater Noida, Gaziabad and further to Sonipat and Panipat.

Valuation

We expect a revenue growth of about 16.4% CAGR over FY2006 - FY2009E. The effect of margin expansion coupled with lower interest costs is likely to improve the PAT by 19.6% CAGR over FY2006 - FY2009E. The stock is available at attractive valuations of 9.3x its FY2009 earnings of Rs 12.3. We initiate Buy on the stock with a price target of Rs 160 (12-month price target).