IGL gets 'overweight' rating from Morgan Stanley after CNG price hike, stock gains

IGL recently announced an increase in Compressed Natural Gas (CNG) prices by Rs 1 per kilogram. The move is expected to support margin normalization for IGL as CNG remains attractive compared to alternative fuels, said Morgan Stanley.

Morgan Stanley has issued an overweight rating for Indraprastha Gas Limited (IGL) with a target price of Rs 575 per share. This recommendation comes in light of global gas outages and a decrease in APM (Administered Price Mechanism) gas allocation, prompting IGL to increase Compressed Natural Gas (CNG) prices.

The city gas distributor recently announced an increase in CNG prices by Rs 1 per kilogram. This is not the first time CNG prices have been raised in recent months.

The move is expected to support margin normalization for IGL as CNG remains attractive compared to alternative fuels, said Morgan Stanley. With the unwinding of EV policy overhang, investor confidence in growth is expected to return, it said.

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Company executives said IGL’s input costs have risen due to rising dependence on imported and auctioned domestic gas from the market, which is costlier, to meet rising demand amid an inadequate supply of cheaper gas under government price control from ONGC’s fields.

IGL had last raised CNG prices by Re 1 per kg on December 14, 2023, in all its markets. In March, however, the price was reduced by Rs 2.5 per kg to Rs 24.09.

At 9:17 am, IGL shares were trading 0.7 percent higher at Rs 474.60 on the National Stock Exchange (NSE). The stock has tumbled 2.5 percent in the last one year, underperforming benchmark Nifty which rose over 25 percent during this period.

Year-to-date (YTD), however, IGL share price has rallied nearly 12 percent, beating Nifty's returns of 8 percent.

In a separate development, it was reported last week that IGL will expand operations in the rooftop solar segment and battery recycling among others.

The move will not only help the company diversify its revenue stream beyond the core businesses of city gas distribution but also help it achieve net-zero targets, ET reported citing sources.

Also Read | Brokerage Radar: Morgan Stanley 'Overweight' on IGL, Zomato

"IGL wants to diversify beyond its core businesses of city gas distribution and liquefied natural gas. EV battery recycling and solar rooftop are promising segments that the company may look at entering," a senior industry official aware of the development told the publication, adding that the company will shortly take this proposal to its board of directors for approval.

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