Buy Indraprastha Gas: target of Rs 585: Sharekhan

Sharekhan's research report on Indraprastha Gas

Volumes bouncing back to 97% of pre-COVID levels, high gross margin of Rs13.7/scm (potential increase of 12.2% y-o-y in H2FY21), rupee appreciation and better operating leverage would drive to 27%/23%y-o-y growth in EBITDA/PAT in H2FY21. Long-term volume growth outlook remains intact given regulatory push and ramp-up of volumes in new GAs. The management expects volumes to reach 10 mmscmd over next 5 years, which implies a 12% volume CAGR over FY20-FY24E. We do not see any meaningful volume risk from competition as open-access regulations exclude OMCs as third-party. This removes a major overhang for CGD players, and the focus would shift back to volume and margin growth.

Outlook

We maintain a Buy on IGL with a revised PT of Rs. 585 as volume growth would support strong PAT CAGR of 20% over FY21E-FY23E with a RoE of ~21%. Robust volume growth track-record justifies premium valuation of 24.6x its FY23E EPS.