Sharekhan's research report on Indraprastha Gas
Q2FY2023 operating profit of Rs. 528 crore (down 15% q-o-q) missed our estimate of Rs. 629 crore due to sharply lower-than-expected EBITDA margin on high gas cost and no CNG price hike. Gas sales volume grew by 2.5% q-o-q to 8.1 mmcmd. EBITDA margin decline was much higher than expected at 18% q-o-q to Rs. 7.1/scm as gross margin was impacted due to no CNG price hike despite a 16% q-o-q increase in gas cost. CNG/D-PNG/I-C PNG volume was up by 2.7%/4.4%/2.2% q-o-q. Further CNG price hikes (post Rs. 3/kg hike recently) are key to sustain margin or IGL may see further margin decline in Q3FY2023. Having said that, a likely change in domestic gas price formula or capping of domestic gas price could help CGD retain pricing power in CNG and act as key rating catalyst. Management aims 10 mmscmd of volume in next two years, which implies 24% growth over Q2FY23 volume of 8.1 mmscmd.
Outlook
We maintain Buy on IGL with an unchanged PT of Rs. 480, as valuation of 18.3x its FY2024E EPS is attractive, given a steep discount of 23% to its five-year average one-year forward PE multiple of 24x.
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