Maintain ADD on Indraprastha Gas - Volume-led performance! - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

Our ADD recommendation on Indraprastha Gas with a TP of INR 444 is premised on (1) Robust volume growth led by its quasi-monopolistic position in Delhi/ NCR with regulatory support in the form of prioritized gas allocation, and (2) Portfolio of mature, semi-mature and new geographical areas (GA). 1QFY21 revenue/EBITDA/APAT was 16.8/11.5/14.4% above our estimates, owing to 19% higher than anticipated volumes, offset by 7% lower per unit EBITDA.

Volumes: Blended volume stood at 2.7mmscmd (estimated 2.3mmscmd), down 56.4/56.6% QoQ/YoY. Volumes were down due to weak CNG demand (60% of volume mix in 1QFY21 versus 75% in 1QFY20). CNG/PNG volumes stood at 1.6/1.1mmscmd. Volume numbers cannot be compared on a YoY or QoQ basis because of the adverse impact of the nationwide lockdown in 1Q.

Margins: Per unit gross spread expanded by INR2.2 YoY to INR 13.7/scm. This is attributable to part retention of the benefit of falling RMC. However, per unit EBITDA fell by INR2.9 YoY to INR3.4/scm mainly due to under-absorption of opex because of substantially lower volumes in 1Q.

Outlook on volumes: We believe that CNG volumes should decline by ~11% YoY to 4.2mmscmd in FY21E dragging overall volumes to 5.9mmscmd from 6.4mmscmd in FY20. However, we expect total volumes to jump by 19% YoY to 7.1mmscmd in FY22E.

Outlook on per unit EBITDA: Per unit EBITDA should dip by 5.8% YoY from the current levels to INR 6.1/scm in FY21 as share of the higher-margin CNG falls. Subsequently, per unit EBITDA should bounce back to INR 6.6/scm in FY22 (+9% YoY). In-line with per unit EBITDA and volumes, consol EBITDA should dip 13.5% YoY in FY21 to INR13bn and subsequently grow 29.8% YoY in FY22 to INR17bn driven by a robust volume outlook and healthy per unit margins.

Change in estimates: We raise our FY21E EPS estimate by 2.2% to INR 14.2/sh to factor in the company's positive 1QFY21 performance.

DCF based valuation: Our TP is INR 444 (WACC 11%, Terminal growth rate 3.0%). The stock is trading at 22x FY22 EPS.

Shares of INDRAPRASTHA GAS LTD. was last trading in BSE at Rs.406.9 as compared to the previous close of Rs. 413.55. The total number of shares traded during the day was 417732 in over 11572 trades.

The stock hit an intraday high of Rs. 417.4 and intraday low of 402.95. The net turnover during the day was Rs. 170361726.

Source : Equity Bulls

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