Indraprastha Gas’ Q4 results were largely in line with our estimates on all key parameters such as volume growth, EBITDA margin and net profit. We maintain that IGL is in a sweet spot with tailwinds for both volume growth – due to supportive policy environment for CNG and renegotiation of Rasgas contract for industrial PNG — and margin improvement — due to low domestic gas price. Maintain ‘buy’.
IGL’s Q4 results were largely in line with our expectation on volume growth, EBITDA margin and net profit. CNG volume growth was 5% in the quarter and 4% for the full year; PNG volume growth improved to 9% for the quarter vs. 4% for the full year. IGL’s share of profit in CUGL and MNGL increased to `536 million vs. `400 million in FY15. The company announced a dividend of `6/share, implying a payout of 24%, in line with historic trend.
Acceleration in volume growth is even more critical to IGL’s outperformance than margin improvement. In Q4, CNG volume growth picked up slightly to 5% from 3% in the previous two quarters (surprisingly, the company reported 8% growth in volumes expressed in scm vs. 5% growth in kg).
Our price target of Rs 710 is based on 15x 12m forward PE, a 25% premium to historic median of 12x, given better outlook. Key risks include- adverse policy, higher feedstock cost or other expenses, lower volume growth.