PNGRB move to decide future of IGL stock: IIFL

Stating that the Petroleum and Natural Gas Regulatory Board (PNGRB) has no jurisdiction on setting gas tariffs, the Delhi High Court today ruled in favour of Indraprastha Gas (IGL). After the ruling, the IGL stock saw a good rally and gained quite a bit.

In an interview with CNBC-TV18, Harshavardhan Dole of IIFL said that there is a possibility of PNGRB challenging the order in the Supreme Court. According to Dole, there is not much to be predicted about the stock at the moment and whether the positivity on the IGL stock continues or not, depends on PNGRB's next move.   Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video. Q: What have you made, complete quashing. Do you think PNGRB will stick with the HC order? Will it go to the Supreme Court? Does it have any grounds to debate on eroding the company's networth on a retrospective basis?
A: There are two different points. One is of course, which was challenged by IGL, whether PNGRB has a jurisdiction to decide the network tariff and the compression charges that the High Court said PNGRB doesn't have a mandate to determine the tariff.
I think PNGRB in all probabilities will go ahead and being an aggrieved party will challenge this order in the Supreme Court. That is my understanding. However, if it does not, then of course it holds well for all the city gas distribution companies and IGL of course will continue to earn the margins that it was earlier earning. Q: What kind of impact do you see on the stock? How much of it is already priced in? Already a 27% upmove is what we have seen on IGL and it's back at the Rs 245 mark?
A: One has to wait and absorb the news flow before taking any buying or selling decision at this point of time. We need to see the High Court order in its totality and also see whether PNGRB goes ahead and challenges this in the Supreme Court. Q: Do you think that it could possibly return to those levels of around Rs 350 for IGL, which we saw in April before the PNGRB order or do you think that there will be a possible overhang?
A: I think the stock will await further clarity. Of course, the initial rerating has already happened. The stock as we speak is already up. But before taking any further decision, I think one should wait and see what PNGRB will do.
If it decides not to challenge this order in the Supreme Court, then I think the story of rerating will further continue. Then I think the stock deserves to trade closer to about 18-19 times one year forward, at which it was trading before. Q: If we consider this the blue skies scenario and assume for the moment that PNGRB does not appeal. Then, which of the gas utilities would you be most comfortable buying at this point? A lot of GSPL tariff orders are yet to be revised, GAIL also has some of its pipelines that are yet to be revised, which gas utility do you think one can buy considering this situation?
A: Before making comments, I need to first ascertain and be doubly sure whether this blue sky scenario will emerge and eventually benefit. So, I would not want to comment on that. Q: I wanted to ask you about GSPL as well because like you were mentioning there was a fear of a similar directive coming in for these companies and we are seeing GSPL spike up quite a bit as well. What is your take on the stock now, it's currently up almost 14%. How much of a relief do you expect to see further from here?
A: If one has to go with the assumption that PNGRB is not going to challenge this order at the Supreme Court, then of course all these stocks will rerate to a pre-IGL tariff order level. Of course, GSPL gives trading at an inexpensive valuation. It trades at 7X one year forward earnings and if there is a great clarity on the tariff, then it can go back to 10 times plus.