Jefferies India
We recommend a ?hold? rating on Indraprastha Gas (IGL) with a price target of R270. Our 12-month DCF-based price target implies 10.4x FY14e EPS and 2.5x FY13 book value, in line with its expected growth, return and risk profile.
IGL’s Q4 Ebitda and net profit were 6% ahead of our estimates. Dividend payout at R5.5 per share was in line with estimates. However, volumes declined 1% sequentially against expectations of 2% rise. Full-year sales volumes grew 9% y-o-y compared with over 20% in the last four years.
Piped natural gas volume growth, in particular, decelerated sharply to 18% from 57%. Lower volumes would have helped protect margins better as incremental volumes need to be supplied from more expensive LNG. Spot LNG prices in Asia have declined to $14.5 per MMBtu from a peak of $19.5 per MMBtu in February, which should help margins. However IGL has not taken a price hike in CNG this quarter, which is negative for margins.
The next hearing of the SC in the IGL vs PNGRB case is scheduled for July 16. PNGRB has submitted that it does not intend to control retail price of gas, which should substantially improve the worst case for IGL. However, management indicated that in case of an adverse verdict, a complete offset of lower network and compression charges through higher marketing margins may not be feasible, thus implying some risk remains from the case outcome.