ADD on Indraprastha Gas - Muted performance - HDFC Securities

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

Our ADD recommendation on Indraprastha Gas with a target price of INR 588 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). 3QFY21 EBITDA/APAT was 10/14% below our estimates, owing to higher-than-expected operating expenses, lower-than-expected other income and higher-than-expected tax rate.

Volumes: Blended volume stood at 6.3mmscmd (vs 5.5/6.7mmscmd QoQ/YoY). Volumes were up as CNG demand (72% of volume mix in 3Q) started to recover post un-lock. CNG/PNG volumes stood at 4.5/1.8mmscmd in the quarter.

Margins: Per unit gross spread expanded by INR 0.8/2.8 QoQ/YoY to INR 14.6/scm. This is attributable to part retention of the benefit of falling RMC. Subsequently, per-unit EBITDA grew by INR 0.7 QoQ and 2.3 YoY to INR 8.7/scm, offset by a higher per-unit opex.

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 CNG volumes to rise ~20% YoY to 5.1mmscmd in FY22E, leading to a 19%YoY jump in the total volumes to 7.1mmscmd.

Outlook on per unit EBITDA: Per-unit EBITDA should rise by 22% YoY to INR 7.9/scm in FY21E. Subsequently per unit EBITDA should correct to INR 7.5/scm in FY22E (-4% YoY). Consolidated EBITDA should grow 12% YoY in FY21E to INR 17bn and 14% YoY in FY22E to INR 19bn driven by a robust volume outlook and healthy per-unit margins.

DCF-based valuation: Our target price is INR 588 (WACC 10%, Terminal growth rate 3.0%). The stock is trading at 26.3x FY22E EPS.

Shares of INDRAPRASTHA GAS LTD. was last trading in BSE at Rs.541.5 as compared to the previous close of Rs. 559.65. The total number of shares traded during the day was 75623 in over 1918 trades.

The stock hit an intraday high of Rs. 561 and intraday low of 540. The net turnover during the day was Rs. 41361066.

Source : Equity Bulls

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