Buy Indraprastha Gas - Dolat Capital

- Our preferred play on the India city gas distribution, IGL continues to deliver sustained volume growth of 15% - 16% and gross spreads around Rs 8 per SCM. The stock has had an uneven performance for good part of 2012 due to the legal issues with the PNGRB. We believe valuations are now discounting a fair degree of negativity on the earnings, and hence we are now including the stock in our preferred picks.

- We are building in volume growth of 15% - 16% CAGR over FY12-FY15E. The incremental volume growth shall be catered by RLNG imports, currently at 30% of total volume. Our calculations suggest IGL has enough headroom to increase the prices and maintain gross spreads due to favorable usage economics as compared to alternate fuels.

- Within user segments, we expect the industrial retail segment to lead volume growth as areas of Ghaziabad and Noida have huge industrial potential. The conversion of private vehicles and addition of new bus cluster would drive the volume growth in CNG segment.

At CMP, the stock trades at 9.7x FY13E and 8.4x FY14E earnings, which are much below historical averages. We have a positive view on the stock with a DCF based target price of Rs.351.

Source : Equity Bulls

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