IGL shares in red after Q1 profit plunges 85% but Nomura, Citi have 'buy' call on stock

Brokerages have termed the June quarter numbers an aberration, say the trajectory of volume recovery and development on regulations are key monitorables.

August 27, 2020 / 11:25 AM IST
 
 
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Shares of Indraprastha Gas (IGL) were in the red after falling over a percent in the morning trade on BSE on August 27, a day after the company reported an 85.42 percent year-on-year (YoY) fall in Q1FY21 net profit at Rs 31.84 crore.

The company has reported a profit of Rs 218.36 crore in the corresponding quarter of the previous financial year.

Revenue from operations declined 60.3 percent YoY to Rs 692.53 crore in Q1FY21 against Rs 1,744.07 crore in Q1FY20.

However, brokerages still have faith in the stock and termed the June quarter as an aberration.

Global brokerage firm Nomura has a 'buy' rating on the stock with a target price of Rs 575.

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As per CNBC-TV18, Nomura said IGL's Q1 earnings were below expectations on lower volumes.

Nomura found IGL's gross margin in-line but lower operational leverage impacted per unit margin. The brokerage believes the CNG price hike will make the margin to expand in Q2.

Global financial firm Citi, too, has a 'buy' rating on IGL with a target price of Rs 540.

"Margin miss drove earnings disappointment in a forgettable quarter. The trajectory of volume recovery and development on regulations are key monitorables," Citi said.

Domestic brokerage firm Motilal Oswal Financial Services has a 'neutral' view on the stock with a target price of Rs 470.

As per the brokerage, IGL's CAPEX in FY20 was Rs 1,050 crore (up 20 percent YoY) and the company has a CAPEX plan of Rs 2,000 crore for the next three years.

"IGL would consider inorganic growth in the coming years. It is also looking at international prospects (such as Myanmar) and has an MoU with Osaka Gas," Motilal Oswal said.

"CNG accounts for nearly 75 percent of IGL’s volumes. The segment has been leading in terms of growth in the last couple of years, led by the proliferation of CNG stations and higher conversions."

The brokerage, however, added that the company is facing headwinds from schools being closed as well as the normalisation of public transportation (for CNG) and commercial spaces such as malls and restaurants

(for PNG). The brokerage believes it will be some time before the business achieves normalcy.

At 1110 hours, the share was trading 1.17 percent down at Rs 408.70 on BSE.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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