Buy Indraprastha Gas: target of Rs 650: Sharekhan

Sharekhan's research report on Indraprastha Gas

As the overhang of open access has ended, we believe that IGL would be able to maintain its monopoly in its legacy GA of Delhi. This coupled with ramp-up of volume from new GAs would drive strong 17% volume CAGR over FY2021E-FY2023E. High margin likely to sustain, as pricing power in CNG (accounts for 74% of volumes) allows CGDs to pass on any hike in domestic gas price to end customers. Hence, maintain our EBITDA margin assumption of Rs. 8.7/Rs. 8.8 per scm for FY2022E/FY2023E. Robust volume growth and high margin to ensure 25% PAT CAGR for IGL over FY2021E-FY2023E along with high RoE of 22.4%. Permanent air pollution commission in Delhi would lead to secular volume growth for IGL.

Outlook

Recent correction of 9% in IGL’s stock price provides an attractive entry opportunity as IGL is likely to be key beneficiary of reforms to push gas consumption in India. We maintain a Buy on IGL with an unchanged PT of Rs. 650.

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