Indraprastha Gas - Matter of belief - Prabhudas Lilladher

Result Highlights: Indraprastha Gas' (IGL's) Q1FY13 results were ahead of our expectation on the EBITDA front as well on the bottom-line front, largely on the back of higher-than-anticipated CNG realisations. Top-line registered a growth of 41.5% YoY to Rs7,607m (Rs5,374m) as against our expectation of Rs7,410m. CNG volumes increased by 13.5% YoY to 183.0m/kg (161.3m/kg), in line with our expectation of 184.5m/kg. Growth in PNG volumes was in line with expectation at 23.50% YoY to 80.0mmscm (64.8mmscm). EBITDA during the quarter at Rs1,797m against an expectation of Rs1,603m was higher on account of higherthan-anticipated CNG realisations. Bottom-line during the quarter stood at Rs850m (Rs801m), registering an increase of 6.22% YoY ahead our expectation of Rs706m during the quarter.

Outlook & Valuation: IGL continues to witness the overhang of PNGRB directive even post the favourable high court judgement. While there will be significant earnings downside if the Supreme Court favours PNGRB, we believe probability of the same looks distant. We believe, Supreme Court at best could direct PNGRB to approach government to empower itself with regulatory powers to determine tariffs. Given the fact that amendment of the Section 16 of the Act itself took a long time, a swift rewriting of the acts looks distant possibilities. We believe that tariff cut will not be retrospective and any future regulatory interference is likely to be less punitive. This, coupled with attractive valuations, makes risk-reward equation in favour of reward. Current Valuation at 1.9xFY14E book looks attractive leaving limited room for further disappointment (assuming no retrospective tariff cut). Our DCF-based target price Rs310/share provides an upside of 16.3% from the current levels. We upgrade the stock from 'Accumulate' to 'BUY' noting ~10% correction since reinstatement of the rating.

Source : Equity Bulls

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