Hold Indraprastha Gas; target of Rs 500: Emkay Global Financial

Emkay Global Financial's research report on Indraprastha Gas

IGL’s mgmt. stated that extended winter (affecting CNG vehicle AC usage) and shift to propane-LPG (industrial vol. fell 6% YoY) are the major factors behind Q1FY24 vol. slowdown. Although no CNG stations were added in Q1, conversions improved QoQ at ~14K/month. Current vols. are at ~8mmscmd, though July saw a run rate of up to 8.35mmscmd. The impact of floods lasted for a week. Long-term EBITDA margin guidance remains at Rs7.5-8.0/scm and high Q1 run rate could cool off due to focus on vol. (17K-18K conversions targeted) and potential cut in petrol-diesel rates (though higher oil price is a positive). Vol. guidance is ~9mmscmd for Q4FY24 and ~10mmscmd for FY25, with Rs14-15bn annual capex.

Outlook

Hence, our vol. assumptions have downside risks but are offset by better margins with no change in earnings. We maintain our HOLD rating on the stock, with unchanged TP of Rs500.