IGL: Up to 75% return likely for this battered stock after Q3 show


An 8 per cent drop in December quarter profit in an otherwise challenging quarter lifted bets on Indraprastha Gas (IGL), as analysts suggest up to 72 per cent potential upside for the stock going ahead. Analysts hope further easing of restrictions will fuel volumes for the city gas distributor.

They also see limited threat to IGL’s growth prospects from EVs and believe favorable fuel economics vis-a-vis petrol (60 per cent cheaper) to further fuel demand.

The only overhang they see is the expected sharp rise in domestic gas price from April, even as CNG’s large discount to liquid auto fuels may allow IGL to pass on most of the increase in domestic gas cost.

Down 20 per cent this calendar, the scrip is in a bear grip. But analysts are unfazed as they believe receding pandemic concerns and opening up of schools will drive growth for the city gas distribution maker in March quarter.

“IGL remains an enviable business model with high volume growth due to geographical expansion and addition of new buses and taxis. Also, fuel economics, shift to private vehicle ownership post pandemic will drive CNG volumes despite excise duty cuts, in our view,” Prabhudas Lilladher said while suggesting a target of Rs 662 on the scrip.

The brokerage said that strained state financials post pandemic leaves a very little room for state government to introduce high cost EV buses which would cost Rs 75 lakh post 40 per cent subsidy) vis-à-vis Rs 35 lakh for CNG variant. Besides, state government subsidies will increase EV penetration in the two wheeler segment, which do not use CNG.

Edelweiss also sees no pressure from EVs, as visible in IGL’s robust volume growth. The brokerage finds the stock worth Rs 672, based on 18.5 times FY23 earnings.

On Wednesday, the scrip was trading 2.7 per cent lower at Rs 381.20. Edelweiss’ target suggests a 74 per cent upside over this price.

IGL had hiked prices in December to pass on an increase in gas sourcing costs.

Despite this, IGL’s December quarter volumes improved to 7.7 mscm, up 6.6 per cent sequentially as lockdown restrictions eased. In the ongoing quarter, the company has further hiked prices.

Easing of restrictions and rising vaccination will likely lift volumes, going ahead, analysts said.

Despite near-term headwinds to margins due to likely spike in domestic gas price in FY23, JM Financial said it likes IGL amid strong pricing power and structural volume growth story based on its existing lucrative NCR market, given CNG penetration in private cars is at only 20 per cent.

This brokerage is also optimistic about expansion into new lucrative nearby cities and intercity traffic. “PNGRB’s open access regulations have significantly reduced the competitive threat from OMCs,” it said while suggesting a target of Rs 555 for the stock.

The company reported a 7.87 per cent YoY drop in net profit at Rs 308.52 crore for December quarter over Rs 334.87 crore in the year-ago quarter. Sales jumped 52.87 per cent YoY to Rs 2,438.48 crore.

“While IGL’s operating profits stood lower on YoY and QoQ basis, it reported a rather healthy set of earnings in an otherwise challenging quarter. Going ahead, we pare our growth estimates to accommodate the proposal for addition of EVs in the new draft aggregator policy by government of Delhi and accordingly our target stands at Rs 550,” YES Securities said.


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