15 September 2020
Update | Sector: Oil & Gas
Indraprastha Gas
BSE SENSEX
39,044
S&P CNX
11,522
CMP: INR420
TP: INR470 (+12%)
Neutral
Looking for the right tilt between risk and rewards
Key highlights of IGL roadshow
We hosted senior management of IGL for a non-deal roadshow. Between double digit
growth for next 4-5 years and upcoming regulation on open access, finding the right
tilt between reward and risk is a challenge. Key highlights below:
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
IGL IN
700
293.8 / 3.9
534 / 285
5/-14/23
1414
55.0
Financials & Valuations (INR b)
Y/E March
2020 2021E 2022E
Sales
64.9
43.8
68.6
EBITDA
15.2
9.7
17.6
Adj. PAT
11.4
6.2
12.0
Adj. EPS (INR)
16.2
8.9
17.2
EPS Gr. (%)
44.5 -45.2
93.3
BV/Sh.(INR)
72.3
78.9
92.6
Ratios
Net D:E
-0.4
-0.3
-0.4
RoE (%)
28.3
11.8
20.1
RoCE (%)
27.1
11.4
19.5
Payout (%)
17.2
22.5
17.4
Valuation
P/E (x)
25.9
47.2
24.4
P/BV (x)
5.8
5.3
4.5
EV/EBITDA (x)
17.9
28.5
15.1
Div. Yield (%)
0.7
0.5
0.7
FCF Yield (%)
2.6
-0.8
4.6
As only essential service providers were allowed to operate over Apr–May during
the COVID-led lockdown, Indraprastha Gas Ltd (IGL) witnessed two months of
poor volumes. Although, recovery was better than expected from June.
CNG volumes are currently at 85–90% of normal levels. However, the company
expects volumes to normalize by the end of 4QFY21. Our model assumptions were
in line with management commentary. We have built-in 70%/85% of pre-COVID
volumes for 2Q/3QFY21 and normalization for 4QFY21.
Maharashtra Natural Gas Ltd (MNGL) and Central UP Gas Ltd (CUGL) have seen
volume impact at levels similar to IGL. CUGL (Kanpur) has seen better recovery,
while MNGL (Pune) has been drastically impacted due to extended lockdown;
thus, expect a lag of 1–2 months in recovery in MNGL v/s IGL.
IGL and MNGL have achieved minimum work program (MWP) despite the COVID
disruption. Management remains confident of achieving double-digit growth from
next year. For FY22, we build-in volume growth of 14%, over FY20 levels, to
7.6mmscmd (v/s 6.4/4.6mmscmd in FY20/FY21).
Growth strategies for IGL include improving CNG infrastructure at its GAs,
increasing PNG penetration, and creating new synergies by bidding for new areas.
Although, we believe virtual connect has drastically impacted intracity/intrastate
travel. Schools remain closed, and the commercial segments are down as there is
uncertainty regarding when traffic would return to restaurants and malls.
We value the company at 24x FY22 adj. EPS of INR17 and add value from JV to
arrive at target price of INR470. Maintain Neutral.
Key drivers – double-digit growth from next year
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
45.0
45.0
45.0
22.2
21.8
21.7
22.3
22.8
22.8
10.5
10.5
10.5
FII Includes depository receipts
Stock Performance (1-year)
Indraprastha Gas
Sensex - Rebased
600
500
400
300
200
The CNG segment could see opportunity from COVID as the use of personal
vehicles increases and people move away from shared mobility, thus
increasing demand in the CNG segment.
Delhi Transport Corporation plans to induct an additional 1,000 CNG buses
(~116 buses would be added by end-Sep’20) by the end of this fiscal.
Delhi currently has ~6,000 buses totally, and IGL expects ~2,500 CNG buses
to be introduced over next 2-3 years (apart from 1,000 mentioned above).
Also, IGL expects EBITDA margin growth of 3–4% per year going ahead (as
the company expects gas prices to remain benign in the near term).
IGL anticipates 3–4 court hearings for finalizing the valuation part of
Gurugram, and expects the deal to be completed by end-FY21. Gurugram
has volumes potential of 2–2.5mmscmd and is currently operating at 0.4–
0.6mmscmd. Although, 150–200 CNG stations would be needed for such
volumes to be built up.
The company does not plan on reducing planned capex, although it may
review capex during the mid-year review.
Capex plans of INR11b for FY21
Swarnendu Bhushan- Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com)
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.