Neutral Indraprastha Gas; target of Rs 470: Motilal Oswal

Motilal Oswal 's research report on Indraprastha Gas

As only essential service providers were allowed to operate over Apr-May during the COVID-led lockdown, Indraprastha Gas Ltd (IGL) witnessed two months of poor volumes. Although, recovery was better than expected from June. CNG volumes are currently at 85-90% of normal levels. However, the company expects volumes to normalize by the end of 4QFY21. Our model assumptions were in line with management commentary. We have built-in 70%/85% of pre-COVID volumes for 2Q/3QFY21 and normalization for 4QFY21. Maharashtra Natural Gas Ltd (MNGL) and Central UP Gas Ltd (CUGL) have seen volume impact at levels similar to IGL. CUGL (Kanpur) has seen better recovery, while MNGL (Pune) has been drastically impacted due to extended lockdown; thus, expect a lag of 1-2 months in recovery in MNGL v/s IGL. IGL and MNGL have achieved minimum work program (MWP) despite the COVID disruption. Management remains confident of achieving double-digit growth from next year. For FY22, we build-in volume growth of 14%, over FY20 levels, to 7.6mmscmd (v/s 6.4/4.6mmscmd in FY20/FY21). Growth strategies for IGL include improving CNG infrastructure at its GAs, increasing PNG penetration, and creating new synergies by bidding for new areas. Although, we believe virtual connect has drastically impacted intracity/intrastate travel. Schools remain closed, and the commercial segments are down as there is uncertainty regarding when traffic would return to restaurants and malls.

Outlook

We value the company at 24x FY22 adj. EPS of INR17 and add value from JV to arrive at target price of INR470. Maintain Neutral.