INSUBCONTINENT EXCLUSIVE:
SBICAP Securities has a buy call on Indraprastha Gas with a target price of Rs 338.
The current market price of Indraprastha Gas is Rs
280.60.
Time period given by the brokerage is one year when Indraprastha Gas price can reach the defined target.
Investment rationale by the
expectation due to strong margin while volume growth continued to be robust
EBITDA margin was strong at Rs5.85/scm (vs
our estimate of Rs5.6/scm and Q2FY19 margin of Rs5.7/scm)
This was despite the rise in opex (to Rs5.21/scm from Rs5.0/scm in Q2FY19) and higher gas cost (to Rs16.7/scm vs
Rs15.5/scm in Q2FY19) as the company was more than able to pass it on to end-consumers
Given the strong pricing power shown by the company in a cost-inflationary environment, we increase our FY20/21 EBITDA margin assumption to
Rs6.2-6.3/scm (from about Rs6/scm).
Volume growth continued to be robust: Overall sales volume continued to be strong at 12.2 per cent YoY
with CNG sales volume growth of 13.1 per cent YoY and PNG sales volume growth of 9.5 per cent YoY
huge scope to expand in its existing lucrative NCR market itself with significant scope in Ghaziabad/Gurugram; b) expansion in new lucrative
(Delhi-Chandigarh, Delhi-Agra, Delhi-Kanpur, Delhi-Jaipur, Delhi-Haridwar, etc.)
Thus, we raise our volume growth estimate for: a) FY20-FY21 to 11-12 per cent (from 9-10 per cent assumed earlier); b) FY22-27 to 8-10 per
cent (from 6-8 per cent); and c) terminal growth to 5 per cent (from 4 per cent).
Upgrade to BUY on structural volume growth/strong pricing
power: We revised our FY20e-FY21e PAT estimate by 7-12 per cent due to higher volume growth/margin assumption
This sharp revision is due to: a) upgrade in our medium- to long-term volume growth assumption and; b) volume growth unlikely to be RoE
dilutive as it will primarily be sourced from its lucrative NCR market; and c) higher valuation of MNGL/CUGL
Hence, we upgrade our rating to BUY (from SELL) due to structural strength in volume growth and strong pricing power
IGL is trading at FY20 P/E of 23.2x (3-year avg of 21.6x) and FY20 P/B of 4.4x (3-year avg of 4.1x)
growth story/ strong pricing power.
