Motilal Oswal's research report on Indraprastha Gas
In 4QFY25, IGL’s adj. EBITDA margin of INR4.6/scm came in below our est. of INR5/scm. Volumes stood at 9.18mmscmd, slightly lower than our est. of 9.29mmscmd. Realization increased sharply by ~INR3/scm QoQ primarily on account of a provision reversal of INR1.14b, while gas cost/opex rose by INR0.5/INR0.8 per scm QoQ, leading to ~INR1.7/scm QoQ expansion in EBITDA margin. We upgrade our rating on IGL to BUY considering the following factors: EBITDA margin bottoming out: We believe IGL’s current EBITDA margin is at the bottom, and the following factors should drive margin expansion: 1) the recent CNG price hike of INR1/INR3 on 7th Apr’25 will support margins. Moreover, with only INR1/kg price hike taken in Delhi since Jun’24, IGL could increase CNG prices further in Delhi, if necessary; and 2) raw material costs have declined in 1QFY26’td. Lower crude oil and Henry Hub index prices, coupled with INR appreciation QoQ, should reduce gas costs going forward.
Outlook
We value IGL at 15x FY27E consol. P/E, and add INR44/sh as value of JVs to arrive at our TP of INR225/sh. At 2.7% FY27E dividend yield and 9% EPS growth, we believe the valuation is attractive. Hence, we upgrade our rating to BUY from Neutral.
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